ATO targets sham contractors

Businesses that rely on contractors face intensified scrutiny by the Australian Taxation Office. which has pledged to audit 20,000 this year to stop sham contracting.


Severe penalties can apply for failing to pay employee entitlements.


Wrongly treating staff as contractors can lead to bills for “pay as you go” tax, superannuation, leave entitlements, higher awards payments and payroll tax.


This year the Tax Office expects to contact 13,000 employers in response to complaints from employees about unpaid superannuation.


In some cases low payroll tax payments may attract the attention of state revenue authorities who would discover the ”employer” indeed had a payroll tax liability.  Faced with scrutiny, businesses would often go “cap in hand” to the Tax Office to clear all tax issues.


A 25 per cent penalty can apply to unpaid payroll tax.  Wrongly paying PAYG can lead to a $1100 fine, and companies that pay super through a later charge lose their deduction.


Indications of a  “contractor” included working autonomously and running a business, whereas an “employee” was more likely to be a worker who took no risk over payment and worked for one company for close to full-time hours.


The Tax Office state that they are trying to level the playing field by scrutinizing employment arrangements. Often the ones who lose out are the business owners.


If you are unsure whether your arrangements will comply with the ATO’s interpretations contact our office on 9836 3044 and we will be happy to review them and advise accordingly