Aug 26, 2009

Fake contractors gouging our tax base: unions

Australia is facing an ongoing drain on tax revenue as a result of the failure of the Howard Government’s attempts to prevent “bogus contracting” from undermining the tax base.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

Australia is facing an ongoing drain on tax revenue as a result of the failure of the Howard Government’s attempts to prevent “bogus contracting” from undermining the tax base, according to data produced by the CFMEU.

While instinctively supportive of independent contractors as a source of “Howard’s battler” style blue-collar conservatism, the previous Government understood that the growth of contracting represented a direct threat to the tax base through the business deductions contractors could claim and the difference between personal and company tax rates.

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5 thoughts on “Fake contractors gouging our tax base: unions

  1. TheOtherMichaelT

    Well there are a few issues here, but it basically comes down to people simply cheating on their taxes.

    For example, i don’t see any reason why anyone shouldn’t be able to setup a company and have that company derive income (through whoever’s labour).

    The problem then is what to do with the money in the business. If you’re a ‘one man band contractor’ the money eventually has to get paid from the company, to yourself, in the form of wages, which are taxed as per usual. And (from what i understand) you legally have to pay into your superannuation.

    You can’t just spend the business money on personal holidays and expenses (groceries, hitech toys, mortgage, rent) etc. Doing so is simply tax fraud, just like someone putting in a $10,000 work related expense on their E-Tax form.

    Of cours the union angle in any of this is very clear (and is pointed out in the article), and should be dismissed as usual propaganda against workers who don’t wish to be under the yoke.

  2. Heathdon McGregor

    A lot of my tradesman friends have this set up where they work as a subcontractor to a larger company. As they have a lot of work they act like an employee but are taxed different.

    My real concern for my friends is when there is not as much work and they lose income and need to deal with centrelink. They may discover the taxes they saved/stole were not worth it.


    Most employers who insist on employees holding ABN’s are saving money. They do this to save on Workers Compensation, Super Payments, PAYG, Holiday Pay, Shift Allowances.
    Also, the Tax Office already lists the following as prerequisites- 1. 80% Rule, you cannot derive more than 80% of your income from one Contractor. 2. The Taxpayer must be responsible for decisions and results of contract including the fixing of mistakes. 3. The Contractor must supply own equipment and tools. 4. Contractor must receive fee for work completion and not hours worked.
    But this tax dodge is only the tip of the iceberg. The cash industry has never been held accountable. How many coffee, bread, food shops can anyone think of in an instant that never put money into a properly recording register. The shop where I take my mending to and the Pizza Restaurant I attend neither has EFTPOS or credit card facilities or a proper recording register. These businesses have ‘Cash only” sales for one thing to cheat the taxman. Most of these businesses only have casual staff and pay in cash, hence no tax from these people as well.
    The only taxpayers forced to pay their rightful tax are PAYG taxpayers and small business.
    There are dozens of ways collection of taxes can be more effective and equitable.

  4. Jim Wright

    I am a little concerned that the business of contracting is mainly as a tax rort. Being a contractor is a business and should be regarded as such. I recently retired after 25 years as a contractor in the IT industry. As some posts have pointed out, you do have responsibilities with regard to PAYG and so forth, but you do have (or should have ! ) income higher than an employee to cover such overheads. The only thing I found a real bind was the time lost to GST and similar procedures. A small company may have about the same number of transactions a year as a big compnay, though the amounts of course are much smaller. The big company can afford to have a person dedicated to this task, whereas the contracto may lose valuable paying time.
    From my perspective there were a lot of advantages in being a contractor.
    * I can buy a car under favourable terms, as I work in other peoples offices.
    * I can buy complex computer equipment to keep up to date with the technology
    * I can invest surplus income before tax instead of after tax.
    * If an employer wants me towork additional (unpaid) hours, i can simply say “why
    should I give my time for free when another client will pay me ofr that same time ?”
    * If I develop software or hardware, it is my own copyright or patent. The position is
    much less clear if I am an employee creating stuff that relates to the employers business
    in my own time.
    As is so often the case, it depends upon how good you are at running the business side of things. I suspect that a lot of tax rorts (let us say non-payments) arose out of the inability of the contractor to keep up with the formal responsibilities of running a business.

  5. Richard Jacobs

    If Mr Sutton of the CFMEU is genuinely concerned about loss of tax revenue by ABN quoters his problem could be easily addressed by requiring payers to ABN holders to report payment details regularly to the ATO.

    Payers to normal Tax File numbers must regularly report. Try quoting a dud TFN and the ATO will be onto it almost immediately.

    This would solve Mr Suttons problem. It would also keep happy those who cannot see any advantage in Mr Sutton and his ilk lifting their power base by sucking on workers wallets as a compulsory income earning condition. As soon as unionism became voluntary these parasites power based disappeared at an amazing rate – around 90% thought they got no value from them.

    Tax laws apply the same to all – its a popular furphy they do not, but they do. There are no more tax deductions available to ABN holders than there are to TFN holders. Its all about compulsory unionism, and offering to cut the ALP in on a share of the increased union fees will ensure Kev07s support.

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