Wednesday July 11, 2001
Tax Office PSI rulings now 12 months late
While taxpayers unsure of their status as a contractor or employee have been given an opportunity to make catch-up payments in the June 2001 quarter, the problem they still face is they do not yet have final guidelines on how to determine their status.
These guidelines should have come in the form of four Tax Office rulings, of which only two have so far been released – and even they are still in draft form.
And, following adjustments to the personal-services income (PSI) provisions by Federal Cabinet on Monday, Tax Commissioner Michael Carmody says these two draft rulings, released in early April 2001, will be "significantly reworked" before being finalised.
The immediate problem for business is that an incorrect self-assessment will result in the taxpayer having to pay all the missed tax from the 2000/01 year, as well as the incorrectly claimed deductions, plus penalties - if not paid by the end of this month.
Transition arrangements announced in late April allow taxpayers an opportunity to pay correctly. Details read:
- Make the correct PAYG withholding payment in respect of PSI for the March 2001 quarter.
- Include a ‘catch-up' payment in the June 2001 quarter of the amount of any PAYG which should have been withheld and remitted in respect of PSI from all earlier periods in the 2000/01 income year.
- Withhold PAYG on the correct basis from the commencement of the 2001/02 income year.
- Taxpayers who act now and who have made a genuine attempt to comply for the 2000/01 income year by the due date of their June 2001 quarter obligations, will not be subject to the imposition of penalties, including GIC, in respect of the ‘catch-up' payment.
- The Tax Office will not require revised activity statements for earlier periods in the 2000/01 income year. Any outstanding tax will be payable on assessment after the 2001 tax return is lodged.
Greg Hayes, senior partner at accountants and business advisors Hayes Knight, says businesses that do not make the catch-up payment by July 28 are likely to be subject to penalties and interest charges.
"This could be a nasty surprise for many SMEs who are already facing cashflow pressures," Hayes says.
"Any small operator that makes an earning from their own personal labour, such as consultants, many subcontractors in the building industry and a raft of tradesmen, need to find out if they are caught by these provisions before they lodge their next BAS."
The best way to determine status in the absence of finalised rulings from the ATO is to apply for a determination – thus filling in the 10-page, 68-question form Monday's concession was designed to avoid.
For more information on the PSI issue, including what businesses should be doing in the lead up to the quarterly BAS due on July 28, get a copy of this week's
bizreview
e-newsletter. Call 1800 649 578 or email
subs@pubserv.com.au for details.
Carmody finally responds to PSI confusion
Tax Commissioner Michael Carmody has announced the ATO will, as a matter of priority, significantly rework and finalise draft rulings dealing with the personal-services income (PSI) measures.
He also has given a commitment to consult with industry to further develop guidelines to help contractors decide if they come within the alienation of personal-services income measures.
Recent consultation with representatives of the courier industry, he adds, confirm that under the standard industry contract owner-driver couriers are considered independent contractors.
However, he fails to note that this only applies to couriers operating in New South Wales, where industrial relations legislation recognises them as contractors and not employees.
In addition, Carmody says he wants to make it "absolutely clear" that retailers, wholesalers and manufactures are not affected by the measures.
"It is only people who derive their income mainly from their labour or skill who might come under this measure," he says.
Independent contractors, he says, are those who derive income from producing a result, where they supply their plant and equipment or tools or trade (if required), and are liable to rectify defective work.
"People affected by this measure then come down to those who get at least 80% of their income from one source and are not independent contractors," he points out.
"Such people could still fall outside this measure by seeking a determination from the Tax Office. The grounds for a determination are that they engage someone else to perform at least 20% of the main work, or if they have an apprentice or business premises separate from their home or client.
"The Tax Office will also recognise unusual circumstances, as provided in the law. For example, someone who usually has several clients but is currently working for one client may also fall outside the measure."
Tuesday July 10, 2001
ATO in state of confusion over PSI change
Australian Taxation Office (ATO) officials are believed to be in a state of confusion following the changes announced yesterday to the personal-services income legislation.
Following a discussion between the National Tax and Accountants Association (NTAA) and a senior ATO official, NTAA president Ray Regan says the ATO is in an "overwhelming state of confusion".
The ATO representative told Regan the two highly controversial draft rulings on the contractors' legislation will not be withdrawn, despite their apparent conflict with the Treasurer's statements.
"The Tax Office is in a bind," Regan says.
"The Treasurer's statement is in conflict with the law and the draft ruling. The Tax Office can't ignore the law, or the Treasurer.
"But the ATO must act now to end the confusion. It can't leave contractors just hanging.
"It is now impossible for contractors to self-assess while the Treasurer and the ATO are making contradictory statements.
"As one small example, the Treasurer says couriers are not caught, but the ATO draft ruling says they are.
"What do taxpayers do? This whole situation is totally unacceptable," he says.
PSI changes only cut paperwork: builders
The changes to personal-services income provisions will lighten the paperwork burden, but they are no more than administrative changes, warns the Queensland Master Builders Association.
Deputy executive director Graham Cuthbert says people need to understand it is only the assessment process that has changed, not the actual rules.
Master Builders Association members are being urged not to self-assess, because of a concern the taxpayer will self-assess only to find an ATO audit determines they have assessed incorrectly and have back taxes and possibly penalties to pay.
A taxpayer wanting to self-assess needs to realise the risk they are taking, Cuthbert says.
"I think that everyone should realise that the legislation is still in place, at the end of any financial year they still have to meet the terms and conditions of the legislation," he says.
"So I don't think the legislation has lost any of its effect or power, it's just made it simpler for people to comply."
One method for a taxpayer to ensure their self-assessment is correct is to use the ATO's comprehensive determination form – in which case they might as well hand it in to the ATO and get the guarantee, thus negating the benefit of Monday's concession.
Courier backflip misunderstanding: Costello
Federal Treasurer Peter Costello maintains the government has not suddenly issued an exemption from the ATO's personal-services income (PSI) ruling to commercial vehicle owner-drivers.
Costello, interviewed by 3AW's Neil Mitchell, claims there has been a "misunderstanding" and changed his tack on the definition of a genuine contractor courier driver.
"(If they) deliver the goods from A to B for $20 or $50, they are contracting for the delivery. They are not in the situation of the person who says, 'I'll drive wherever you want me, and here is my daily wage, or my weekly wage, or my monthly wage'," he says.
Costello says the test of a genuine contractor is someone who is contracted for a result and liable for rectification.
But once again Costello's comments contradict the Tax Office's draft ruling TR 2001/D4.
Example 6 of the ruling also profiles a courier driver who is paid by the courier company "having regard to the number of deliveries that are made".
Because the courier's vehicle in the example represents 40% of the business' running costs, the Tax Office ruling still maintains the income is earned mainly from the provision of personal services.
Costello's office and the ATO have so far not responded to urgent requests for further clarification.
Treasurer caught out on PSI rules: TWU
The federal government's revised position on personal-services income (PSI) runs counter to the advice of the Tax Office (ATO) and needs urgent clarification, according to Transport Workers Union (TWU) NSW state secretary Tony Sheldon.
Treasurer Peter Costello last night told the ABC's
7.30 Report that "your courier who owns his own van derives his income from his truck or his van ... they don't even come into these (PSI) measures".
Sheldon points out that the ATO makes it abundantly clear that, as far as it's concerned, a courier van driver is MAINLY deriving its income from personal labour and, therefore, is taxable as an employee.
"If this is the case, then either the Treasurer has got it wrong, doesn't know what his advisors in the Tax Office are up to, or has deliberately tried to mislead thousands of owner-drivers and independant contractors in the transport industry," he says.
"The TWU is calling on the Treasurer to immediately instruct the Tax Office to change its draft rulings to exclude independent contractors in the transport industry.
"Until that happens the TWU's campaign will continue in the lead up to a mass meeting of couriers, owner-drivers, industry representatives and tax experts this Sunday at Parramatta RSL and Bowling Club."
ATO or Treasurer: Who do you believe?
Last night on ABC TV, Federal Treasurer Peter Costello gave an additional assurance that owner-drivers will not be affected by the controversial personal-services income rules.
"One of the misapprehensions that has been put around is that somehow this applies to owner-drivers, it doesn't," Costello says.
"An owner-driver doesn't derive their income from personal labour. An owner-driver derives their income from the ownership of their vehicle, of their plant."
However, the Australian Taxation Office (ATO) has confirmed it is the process of deriving a schedule of truck classifications splitting out the labour cost from other costs of vehicle operation. Based on the NSW contract of determination costings, the proportion of labour costs diminishes as the vehicle size increases.
Initial indications provided by the ATO to this publishing company suggest a ‘rule of thumb' breakpoint of 4 to 4.5 tonne GVM. Below this point, the labour element of the trucking service is demonstrably more than 50%.
This means the income of a courier running a small light commercial van or ute is likely to be assessed as personal-services income.
A non-technical flyer clearly explaining the rules will be released nationally once industry responses to the draft proposal have been considered.
In addition, on the ATO's own website is an example incorporating a owner-driver courier who is caught by the measures.
Costello's office is being contacted regarding this anomaly. An update will be published as soon as a response is forthcoming.
Treasurer ... we're still waiting
Federal Treasurer Peter Costello has so far failed to respond to ATN's key question on whether light commercial vehicle owner-drivers will be assessed for personal services income (PSI).
The confusion arises from an interview during last night's 7.30 Report where the Treasurer clearly told the presenter that PSI did not apply to couriers and owner-drivers who derive their income from a truck.
"He probably read it in the press that, if he was an owner-driver he came within these measures ... don't believe everything you read in the press," Costello said.
Strangely, this is news to the Australian Tax Office (ATO) who have been briefing the press and accountants that PSI does apply to couriers. An example of this is even highlighted in the ATO's draft ruling.
Tax officials are now running to the Treasury for clarification. And we're still waiting ...
Monday July 9, 2001
Contractors face same tests and penalties
Despite the government's seeming backdown on the personal-services income provisions, self-employed contractors still have to pass the same tests and are still liable for the same penalties.
Changes announced today to the alienation of personal-services income measures mean taxpayers who fail the 80/20 test will now be able to self assess in a similar fashion to those who pass the 80/20 test.
However, if taxpayers get it wrong, the Australian Taxation Office (ATO) may audit them with the consequences being back payments of tax and penalties.
CPA Australia's senior tax consultant Garry Addison likens this to the ongoing tax-effective investment schemes situation.
Today's changes allow independent contractors who derive 80% or more of their income from one source to self assess their status, rather than seeking a determination.
They may still seek a determination if they want the ATO's guarantee they are a personal-services business, Federal Treasurer Peter Costello says.
Costello says the test these businesses must use to self assess is the "traditional test for independent contractors" - that they derive income from producing a result, where they supply their plant and equipment or tools of trade (if required) and where they are liable for rectification of defective work.
"The measures do not apply at all where a person has a number of clients," he says.
"The measures do not apply at all to owner-operator truck drivers or couriers who derive income mainly from their truck or vehicle rather than labour or skills.
"The measures apply where a person supplies labour or skills and works predominantly (80% or more) for the one person, with no employee performing part of the work, and no separate business premises."
Concessions offer no relief
Tens of thousands of truck couriers and owner drivers will get no joy from today's announcement by Federal Treasurer Peter Costello regarding personal services income.
"The Treasurer's offer today that contractors will be able to self assess and reduce their compliance cost means nothing to a courier or truck driver that is facing an increased tax bill of up to an extra 20% in the next three to 12 months," Transport Workers Union New South Wales state secretary Tony Sheldon says.
"Despite the Treasurer's announcement, transport workers earning over 80% of their income from the one source will still have to comply with the provisions and still have to pay approximately 20% more tax.
"Not filling in a form offers no relief from the measures and no real savings given the significant cost impost the GST and BAS have already put on the industry," Sheldon says.
Change to PS income rules no good: CPA
Today's announcement by Federal Treasurer Peter Costello concerning the alienation of personal-services income (PSI) provisions is not a long-term solution to the problem, CPA Australia claims.
Senior taxation consultant Garry Addison says the announcement that those deriving more than 80% of their income from one source can now ‘self assess' without needing to seek a determination from the Australian Taxation Office (ATO) is not a solution to the problem.
"This announcement doesn't address the underlying problems that currently exist in the rules," Addison says.
"A comprehensive review of the legislation is needed to ensure that the anomalies are removed and the application of the new rules is clear to all."
The review should be in consultation with the major accounting and tax professional bodies.
"Today's announcement means that those eligible who don't meet the 80/20 rule can now self assess to determine their eligibility for PSI," Addison says.
"But, if the ATO is having trouble making determinations, how is the process going to be any easier for taxpayers?
"While CPA Australia supports the basic principle behind the legislation, there a number of anomalies in the current law that are unfair and confusing.
"For instance, people who should be eligible to claim PSI but are working from home currently can't meet the business premises test, and this may be the only test that is applicable to them.
"This disadvantages a large group of people who should genuinely be entitled to be treated as a personal-services business.
"Also, a truck driver who owns his own truck is able to be treated as a personal services business, but this treatment is not available to a radiographer operating an expensive machine. This is blatantly unfair."
Previous stories from 2001 on PSA's publications
ATN,
SupplyChain Review and
bizreview: