CONTRACTORS could face a torrid time under Australia’s proposed tax regime.
CONTRACTORS could face a torrid time under Australia’s proposed tax regime.
Jackson McDonald business advisory services tax consultant Graham Harrison said there were about six changes that would hit contractors.
Firstly, any contractor earning more than $50,000 a year will be required by law to register for GST. Those earning less than $50,000 a year can register by choice.
Mr Harrison, who was also part of the Ralph review team, said the pay as you go withholding tax provisions provided a big lever to force people into the GST system.
“If a contractor cannot quote an Australian Business Number to a customer, that customer is required to withhold 48.5 per cent of the payment and remit it to the ATO,” Mr Harrison said.
Registrations for the ABN are now open. The number is needed for GST and other business identification purposes.
“Admittedly the contractor gets an income tax credit but it doesn’t help their cashflow,” Mr Harrison said.
“I suspect a lot of contractors will only know about this when it hits them.”
Personal services income looms as another hurdle for contractors.
“Those contractors working through a company or trust and getting more than 80 per cent of their income from one source will be treated as individuals,” Mr Harrison said.
“They also lose out on the company tax rate, which will be 30 per cent by 2001, and business deductions.”
The personal services income test is designed to catch those that are “employee-like”.
“Businesses caught in this test can apply to the Commissioner of Taxation for a dispensation,” Mr Harrison said.
He said contractors were going to have to update their accounting systems to ensure they tracked all transactions.
“In order to claim input tax credits, businesses have to supply a tax invoice,” Mr Harrison said.
“That invoice has the ABN of the supplier on it. All invoicing systems have to accommodate the ABN and other things specified by law.”
Mr Harrison said contractors had to consider how the GST would affect their cashflows and terms of trade.
They also need to take into account contracts spanning the GST introduction period. If necessary, contracts need to be renegotiated to make sure they have appropriate GST clauses.
“Contractors also need to know what the rules are for pricing,” Mr Harrison said.
The ACCC gearing up to make sure there is no GST profiteering.
Mr Harrison said some contractors were going to have to come to terms with remitting a regular business activity statement.
“This is essentially a return for GST and other tax obligations such as PAYG withholding obligations,” he said.
“The ATO is designing its compliance programs around this statement.”
Jackson McDonald business advisory services tax consultant Graham Harrison said there were about six changes that would hit contractors.
Firstly, any contractor earning more than $50,000 a year will be required by law to register for GST. Those earning less than $50,000 a year can register by choice.
Mr Harrison, who was also part of the Ralph review team, said the pay as you go withholding tax provisions provided a big lever to force people into the GST system.
“If a contractor cannot quote an Australian Business Number to a customer, that customer is required to withhold 48.5 per cent of the payment and remit it to the ATO,” Mr Harrison said.
Registrations for the ABN are now open. The number is needed for GST and other business identification purposes.
“Admittedly the contractor gets an income tax credit but it doesn’t help their cashflow,” Mr Harrison said.
“I suspect a lot of contractors will only know about this when it hits them.”
Personal services income looms as another hurdle for contractors.
“Those contractors working through a company or trust and getting more than 80 per cent of their income from one source will be treated as individuals,” Mr Harrison said.
“They also lose out on the company tax rate, which will be 30 per cent by 2001, and business deductions.”
The personal services income test is designed to catch those that are “employee-like”.
“Businesses caught in this test can apply to the Commissioner of Taxation for a dispensation,” Mr Harrison said.
He said contractors were going to have to update their accounting systems to ensure they tracked all transactions.
“In order to claim input tax credits, businesses have to supply a tax invoice,” Mr Harrison said.
“That invoice has the ABN of the supplier on it. All invoicing systems have to accommodate the ABN and other things specified by law.”
Mr Harrison said contractors had to consider how the GST would affect their cashflows and terms of trade.
They also need to take into account contracts spanning the GST introduction period. If necessary, contracts need to be renegotiated to make sure they have appropriate GST clauses.
“Contractors also need to know what the rules are for pricing,” Mr Harrison said.
The ACCC gearing up to make sure there is no GST profiteering.
Mr Harrison said some contractors were going to have to come to terms with remitting a regular business activity statement.
“This is essentially a return for GST and other tax obligations such as PAYG withholding obligations,” he said.
“The ATO is designing its compliance programs around this statement.”
