If you are engaging labour-based contractors or if you are a contractor, this is of interest to you.
Understanding ATO’s Views
Some interesting events are occurring in the contractor engagement space which are worthwhile noting.
We have been reviewing the experiences of several clients, along with press reports and anecdotal discussions with a number of business owners. This gives us a clearer picture of how the ATO views contractors invoicing for personal services through conduit entities such as an ABN, Company or Trust.
The ATO’s default view appears to be this: When an individual invoices for labour-based personal services via a conduit entity, they are alienating their Personal Services Income. So the ATO does NOT consider that they are running a personal service business.
Myths And Reality About Engaging Labour-based Contractors
There is a commonly held Urban Myth: It suggests that an individual providing labour-based services can invoice via a conduit such as ABN, company or Trust and automatically running a compliant business. But this is not the case! The medium by which the individual invoices provides no compliance comfort at all.
The onus is then placed on the individual, or vicariously the company engaging their services, to prove they are conducting a compliant contracting arrangement under the Personal Services Income (PSI) Legislation.
This means that in order to be considered to be running a personal services business (PSB), the individual has to legitimately pass the validation tests prescribed under the Personal Services Income (PSI) legislation.
The Hard Way, Or The Easy Way? What Would You Prefer?
Your first option is to fill out the forms on the ATO website and seek a determination. However the PSI legislation must be passed every financial year.
This onus of proof can be quite difficult when endeavouring to validate if a relationship between a client and contractor is legitimate.
With that said, it amazes me that few people know there is a much better way to engaging labour-based contractors. Yet it has been in use since the 1970’s; it has been tested and it lawfully moves a contractor engagement outside the obligations imposed by the PSI Legislation.
How to Find Out More About Your Risks And Solutions
You can read more on the challenges and options when engaging labour-based contractors at www.contractright.com.au.
Why not request a FREE Compliance Kit? This kit provides useful background to the complexities created by seven competing areas contractor compliance legislation. All you have to do is send an email to firstname.lastname@example.org or call 1300 358 431
You can also ask for a ContractRight brochure or a no-obligation risk assessment.