Businesses around Australia are beginning to realise the implications of the tax changes resulting from the personal services income (PSI) rules – but for many it is too late.
Changes to the law mean people who earn an income mainly as a result of their personal services (labour) have to pass a series of tests to ensure their income continues to be classed as business income, not personal income (and taxed accordingly).
The rules came into place in July 2000, with transitional provisions providing penalty relief ending on June 30 this year.
The transport industry has been heavily impacted by the changes, with owner-drivers of lower-value light commercials potentially falling into the net because the ‘personal skills' (labour) element of their 'service' is greater than the cost of running the asset (truck).
The Transport Workers Union (TWU) is fighting this issue.
TWU NSW state secretary Tony Sheldon says the ATO's actions contradict assurances given by the federal government that genuine contractors in the transport industry would escape the PSI ruling.
One group of businesses that have received some positive news in recent weeks is agents who earn income predominantly by commission.
Commission agents complained that while they were paid largely by one company (such as an insurance company), they actually earned their commission selling directly to a lot of customers.
As a result, the ATO will exempt them from PSI legislation from July 2000.
This will be reliant on them passing a number of difficult tests, covered in the linked article below.
For more information on the particular issues faced by transport operators and commission-based agents: