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Government payroll backflip

By Canfan 17 June 2014 52

During questions from the opposition during yesterday’s estimates hearing, ACT Treasurer Andrew Barr revealed the government is reconsidering its proposed payroll tax amendments to remove the genuine employer exemption, due to their affect on ACT small businesses and contractors. Only after an outcry from small business and the Canberra Liberals has Mr Barr acted, Shadow Treasurer Brendan Smyth said today.

“The Treasurer conceded that consultations after the budget was announced revealed the difficulties this bill has caused ACT businesses. I am astounded at the lack of forethought the government has put into this bill,” Mr Smyth said.

“The government seemed unaware that most of the negotiations for contracts for the coming financial year, especially with the federal government, have in the main been concluded.

“It is amazing that at a time that the government has funded a program to assist federal public servants moving into private enterprise, they are taking away the exemption that will in many cases make that move viable.

“Additionally, the proposed changes have a short term impact of favouring multinational companies.

“At a time when we should be making it easier for ACT small businesses and contractors, this is yet again an ill-conceived and ill-timed proposal by the government simply to raise extra revenue to pay for the government’s addiction to spending,” Mr Smyth concluded.

(Media Release Jeremy Hanson)

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Government payroll backflip
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giulia 7:13 pm 24 Jun 14

Tracy Angwin from the Australian Payroll Association has a strange test to determine if a person should be defined as a contractor or an employee.

See this SmartCompany article: http://www.smartcompany.com.au/finance/tax/42466-smes-warn-payroll-tax-changes-may-hurt-their-businesses-as-act-government-seeks-to-harmonise-rules.html#

Dondon 1:10 pm 22 Jun 14

dungfungus said :

So the ATO will not be pursuing the employers for the Superannuation Guarantee Payments and PAYG tax?
That will be the day.

You don’t understand how contractors work. That is all paid for out of the contractors gross hourly rate.

For example:
My rate is $100 p/h, the agency adds their margin on top of that and that (my rate + margin) + gst is charged to the client.
From my $100 I then have the following deducted:
* payroll tax
* income tax
* superannuation
* insurances

The agency is only viewed as an employer for the deduction of the payroll tax, and they pass this cost straight onto the contractor. The contractor already wears the costs of super and PAYG out of their hourly rate.

dungfungus 10:45 am 22 Jun 14

Dondon said :

dungfungus said :

So, overnight they become “workers”. This will mean the “employer” will have to pay them superannuation at 9.5% which will more than offset the payroll tax deduction.
Additionally, the contractor’s company will no long be the “intermediary employer” so they will not have to pay workers’ compensation insurance, in fact the employer will have to pay this.
Some contractors may have professional indemnity insurance also so this responsibility will have to transfer to the employer.
What a dog’s breakfast.

Not quite, we only become workers in the eyes of the ATO. The pimps have cleverly worded their contracts with the contractors so they can clearly avoid having the employer-employee relationship liabilities such as super, leave and PI insurance.

So the ATO will not be pursuing the employers for the Superannuation Guarantee Payments and PAYG tax?
That will be the day.

Dondon 6:17 pm 20 Jun 14

dungfungus said :

So, overnight they become “workers”. This will mean the “employer” will have to pay them superannuation at 9.5% which will more than offset the payroll tax deduction.
Additionally, the contractor’s company will no long be the “intermediary employer” so they will not have to pay workers’ compensation insurance, in fact the employer will have to pay this.
Some contractors may have professional indemnity insurance also so this responsibility will have to transfer to the employer.
What a dog’s breakfast.

Not quite, we only become workers in the eyes of the ATO. The pimps have cleverly worded their contracts with the contractors so they can clearly avoid having the employer-employee relationship liabilities such as super, leave and PI insurance.

giulia 5:31 pm 20 Jun 14

Timmytron said :

I heard the payroll tax implementation has been delayed until the 1st of October. Can anyone confirm?

ACT Revenue Office website has been updated:

http://www.revenue.act.gov.au/__data/assets/pdf_file/0004/606676/Payroll-Taxation-Changes-Wage-Threshold-and-Employment-Agent-Exemptions.pdf

Timmytron 4:35 pm 20 Jun 14

I heard the payroll tax implementation has been delayed until the 1st of October. Can anyone confirm?

VYBerlinaV8_is_back 4:11 pm 20 Jun 14

dungfungus said :

Garfield said :

aaa123 said :

TaxedContractor said :

To throw in one last point to consider – given that this tax is now (apparently) a cost of earning an income, can I claim this as a Tax deduction? Fairly sure the ATO should have a vested negative interest in this local council’s policy change as well…

That is an interesting point. That said the ATO probably doesn’t have any official rulings relevant to this because no other state or territory has ever tried to implement anything in such a stupid, badly thought out, retrospective and unfair way with no regard for the average worker.

The payroll tax will be coming out of your pre-tax income, so you won’t pay income tax on it and its not deductible as you won’t receive it.

Correct me if I am wrong but the people who are going to be affected by these changes are only contractors.
So, overnight they become “workers”. This will mean the “employer” will have to pay them superannuation at 9.5% which will more than offset the payroll tax deduction.
Additionally, the contractor’s company will no long be the “intermediary employer” so they will not have to pay workers’ compensation insurance, in fact the employer will have to pay this.
Some contractors may have professional indemnity insurance also so this responsibility will have to transfer to the employer.
What a dog’s breakfast.

I wonder if the requirement to pay superannuation will be levied on both the agency and payroll company? You’re right, this is dog’s breakfast that hasn’t been thought through at all.

ACT Government, can we PLEASE have some clarity on these issues?

VYBerlinaV8_is_back 3:42 pm 20 Jun 14

It seems now that the bodyshops will indeed be holding back monies on June timesheeted work, regardless of whether the resource is provided via a shelf company or through a genuine employer (who already pays the payroll tax). This means that some people will be paying the payroll tax twice.

ACT Government – you need to clarify the situation, now. Contractors run timesheets for June in 10 days time and will be having money withheld, despite no legislation being passed.

dungfungus 12:31 pm 20 Jun 14

Garfield said :

aaa123 said :

TaxedContractor said :

To throw in one last point to consider – given that this tax is now (apparently) a cost of earning an income, can I claim this as a Tax deduction? Fairly sure the ATO should have a vested negative interest in this local council’s policy change as well…

That is an interesting point. That said the ATO probably doesn’t have any official rulings relevant to this because no other state or territory has ever tried to implement anything in such a stupid, badly thought out, retrospective and unfair way with no regard for the average worker.

The payroll tax will be coming out of your pre-tax income, so you won’t pay income tax on it and its not deductible as you won’t receive it.

Correct me if I am wrong but the people who are going to be affected by these changes are only contractors.
So, overnight they become “workers”. This will mean the “employer” will have to pay them superannuation at 9.5% which will more than offset the payroll tax deduction.
Additionally, the contractor’s company will no long be the “intermediary employer” so they will not have to pay workers’ compensation insurance, in fact the employer will have to pay this.
Some contractors may have professional indemnity insurance also so this responsibility will have to transfer to the employer.
What a dog’s breakfast.

Garfield 9:44 am 20 Jun 14

aaa123 said :

TaxedContractor said :

To throw in one last point to consider – given that this tax is now (apparently) a cost of earning an income, can I claim this as a Tax deduction? Fairly sure the ATO should have a vested negative interest in this local council’s policy change as well…

That is an interesting point. That said the ATO probably doesn’t have any official rulings relevant to this because no other state or territory has ever tried to implement anything in such a stupid, badly thought out, retrospective and unfair way with no regard for the average worker.

The payroll tax will be coming out of your pre-tax income, so you won’t pay income tax on it and its not deductible as you won’t receive it.

aaa123 9:55 pm 19 Jun 14

TaxedContractor said :

To throw in one last point to consider – given that this tax is now (apparently) a cost of earning an income, can I claim this as a Tax deduction? Fairly sure the ATO should have a vested negative interest in this local council’s policy change as well…

That is an interesting point. That said the ATO probably doesn’t have any official rulings relevant to this because no other state or territory has ever tried to implement anything in such a stupid, badly thought out, retrospective and unfair way with no regard for the average worker.

TaxedContractor 9:09 pm 19 Jun 14

davo101 said :

It’s closing a loop-hole that doesn’t exist in other jurisdictions. Are you suggesting we should leave it open so people can continue to abuse it?

It isn’t closing a loop-hole, it is removing a clearly defined policy that has been in affect for years. The ACT Gov’t enacted this particular policy in order to attract interstate businesses and their employees to Canberra, obviously eyeing off the greater benefit of additional expenditure (think parking, traffic and parking infringement revenue) , increased population (leading to an increase on rates, higher payments from Federal Govts) etc. Overall this would be a much higher win for the local economy than a tax on a few larger businesses payrolls. I think you will find that every State and Territory has certain policies like this one, all trying to lure in extra business.

bj_ACT said :

With no clarity on who has to pay it, putting contractors and service providers in legal disagreement, no opportunity to cover the cost increase through the employer and massive costs to break a contract that have signed in good faith.

I believe it is a fairly clear law as to who the tax is levied on – it is an employers tax on their payroll. Not an income tax on a workers wage. As I pointed out earlier – it is a tax for the portion over $1.85million. The issue is that now these employment companies are forcing it downstream to the contractors, not upstream to the ultimate employer or wearing it themselves – which incidentally is the law as it stands in places such as Victoria:
http://www.sro.vic.gov.au/SRO/sronav.nsf/childdocs/-3A87315B22BC23FFCA2575A100441F59-11C80F203927331FCA2575A100441F65-B5C033D308F89C8ACA2575A100441F7E-87112CB4815690A8CA2575C8000BAF8D?open

You may have also seen the ACT Revenue Office’s recent advice regarding the introduction of this very same rule, no doubt as an attempt at clearing up some of the confusion they have initiated. This further shows that at no point should the tax be considered payable by the employee at the end of the chain.

Further more, as has been advised by many recruitment agencies in recent days, they are planning on passing the entire 6.85% onto each and every worker. Lets consider this fact for a moment – each company plans to collect 6.85% from each worker. That’s 6.85% of their total payroll. As you may have now realised, they are now required to pay 6.85% payroll tax – on the payroll portion over $1.85million. This now leaves $1.85million of untaxed payroll – or a $126,725 windfall for each company, each year. Perhaps now can you understand just one part the problem? As much of a headache as this is likely to be to all those involved (yes, I also have some empathy for the recruitment agencies), fairly sure it is clearly the workers getting the raw end of this “brilliantly introduced” plan.

It is not an entirely unfair assumption that there are other larger companies that are now also caught up in this saga – how about industries like office cleaners and shopping trolley collectors. These represent the workers who are getting paid minimum wage. Wonder how they feel about taking a 6.85% pay cut under these same changes? More to the point, I wonder how the Fair Work Commission are viewing this?

To throw in one last point to consider – given that this tax is now (apparently) a cost of earning an income, can I claim this as a Tax deduction? Fairly sure the ATO should have a vested negative interest in this local council’s policy change as well…

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