The Australian Taxation Office (ATO) will release a ruling in a few week's time that changes the emphasis on the testing process for personal-services income (PSI) provisions.
A briefing teleconference this week with the Australian Trucking Association (ATA) revealed the ATO will reverse the order of tests for the self-assessment process, placing the rectification rule as the first test.
The test reads: "That the individual or entity is producing a result, supplies their tools of trade and is liable for the cost of rectifying defective work."
Both Prime Minister John Howard and Treasurer Peter Costello have, in recent weeks, placed an emphasis on this test that is not reflected in the ATO's implementation.
"If, at the end of the day, you're responsible for your work, you've got to rectify it, you've got to remedy mistakes, you're potentially liable, you're an independent contractor," Howard says.
"If you're not, then you're an employee and why shouldn't you be treated like any other employee."
The legislation was interpreted and implemented by the ATO in this fashion:
- First, the taxpayer must decide if they are earning personal services income (income mainly derived from personal efforts or skills).
- If they are earning PSI, they must then use the tests to see if they are operating a personal services business and thus exempt from the provisions.
- The tests are as follows:
- If the 80/20 test is passed, self-assess on the basis of either the employment, business premises or unrelated clients test
- If the 80/20 test is failed, get an ATO determination on the basis of the three tests above – or then the fourth test based on rectification.
The new ruling, expected to clarify the ‘rectification/further grounds' test, was due to be issued this week, but the ATA has been told it will not be issued until late July or early August.
"Those contractors who perform their work under arrangements defined as a contract of carriage will be deemed to satisfy this test," the ATA says.
"The ATO has committed itself to continue to consult with the ATA on this matter and the development of the ruling, however the ATA continues to lobby for the exclusion of all the road freight transport industry from this measure."