Government payroll backflip

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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52 Responses to Government payroll backflip
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giulia 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 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 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 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 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 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 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 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 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 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 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 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…

milkman milkman 7:51 pm 19 Jun 14

Garfield said :

Dondon said :

$15k less money I have available to spend in the community. So instead of stimulating the economy this is causing me to have the ability to spend less on discretionary spending.

But don’t you know that Labor Governments always know how to spend your money better than you do?

They’ve certainly had enough practice.

Garfield Garfield 7:22 pm 19 Jun 14

Dondon said :

$15k less money I have available to spend in the community. So instead of stimulating the economy this is causing me to have the ability to spend less on discretionary spending.

But don’t you know that Labor Governments always know how to spend your money better than you do?

Dondon Dondon 5:51 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?

The issue isn’t about the actual tax but the short time frame in which it was announced and to be implemented. Most contractors will have had already negotiated their rates for any 14-15 fy contacts without consideration to the tax. Due to this short notice agencies also have also not had time to change their margins to absorb the tax and as such are making the contractor pay it out of their hourly rate. How would you feel if you had negotiated your salary with an employer then the government made changes to some legislation creating a tax liability to the employer, then your employer passes the costs directly to the employee. It is going to be up to $15k in my situation, that is a sizeable loss of money regardless of my total annual earnings.

If there was sufficient notice of the change before the turn of the financial year then both contractors and agents will be able to negotiate with clients and adjust rates to try and offset the tax. As of now they cannot.

As for matching other jurisdictions ACT also has the highest rate compared to the others. Significantly more in some instances.
QLD 4.75%
VIC 4.85%
SA 4.95%
NSW 5.45%
WA 5.5%
NT 5.5%
TAS 6.10%
ACT 6.75%

Scumbag_College said :

Dress it up with standard government spin like “harmonisation” and “providing certainty to employment agents” to attempt to deflect the attention away from the actual outcome that this change will bring

Andrew Barr’s call of harmonisation is total BS, as you said it is just seen as a cash cow. If they were looking at it as a “harmonisation” level, then why is the ACT increasing rates as part of abolishing Stamp Duty and why don’t they lower the payroll tax % to bring it in line with an average of the other jurisdictions.

Normally I am a fan of trains but even I thought the light rail idea was a silly idea in the ACT due to the cost benefit. Plus I live South side. Now I going to totally despise the thing since this money grab is to help fund the white elephant.

$15k less money I have available to spend in the community. So instead of stimulating the economy this is causing me to have the ability to spend less on discretionary spending.

bj_ACT bj_ACT 3:43 pm 19 Jun 14

davo101 said :

Scumbag_College said :

Incredibly disappointing and short-sighted policy.

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?

You’re missing the point Davo – People and contract service providers are unhappy that they have already formally entered into fixed contracts for 2014/15 and out of nowhere have to pay an extra 7% tax. 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.

Whilst most won’t like the tax going forward, it is the lack on consultation that grates. The new tax should have been legislated well before contracts are entered into not after. Imagine you bought a house in Pearce last week and after the you signed the contract the government suddenly add’s 6.85% to the property tax, back dates the tax and doesn’t make it clear whether the buyer or seller has to pay it.

I don’t think too many people would be happy with this screnario and it makes it hard for small business to operate in Canberra if the ACT Government can’t be trusted on backdating new taxes.

davo101 davo101 2:39 pm 19 Jun 14

Scumbag_College said :

Incredibly disappointing and short-sighted policy.

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?

Scumbag_College Scumbag_College 10:17 am 19 Jun 14

Incredibly disappointing and short-sighted policy.

My theory – the 2014-15 federal budget has cut funding to states and territories, so Mr Barr and the ACT government have decided to claw some of the loses back from federal government through a tax on contractors (who are paid by the federal government). Dress it up with standard government spin like “harmonisation” and “providing certainty to employment agents” to attempt to deflect the attention away from the actual outcome that this change will bring, and I hate to use a cliché but it is true – the reduction by almost 7% of the income of over a thousand working families in the ACT, not to mention the potential for employment agencies to go bust.

Even more bafflingly, Mr Barr has claimed that this will “promote economic growth”. Very interested to know how that conclusion was reached, given that he proposes to take money out of the hands of people that consistently pour money into the ACT economy (through retail spending, rates, stamp duty etc etc).

The timing of this change could not be worse, given the current job climate in the ACT due to the APS job cuts and recruitment freeze. I would have expected a Labor government to support its workers through tough times. If this legislation is passed Labor will lose my vote, and I dare say the votes of many affected by this change.

Shunt Shunt 9:11 pm 18 Jun 14

Existing contracts should be exempt – when new contracts are negotiated the change can be factored in.

If you are affected by the changes and disagree you should let your elected officials know:
barr@act.gov.au
gallagher@act.gov.au

aaa123 aaa123 8:07 pm 18 Jun 14

CUNNINGSTUNTS said :

“My recruitment agency advised me today that they would deducting 6.85% of my gross income from 1 July.”

If your recruitment company takes money from you unlawfully and you don’t agree to it, I would strongly encourage you to call the police to report the theft.

Till such point as this becomes legislation if my recruiter or payroll company steal money from my pay I too will be calling the police.

I don’t mean to be rude but you need a lesson in life.

If you ring the police they will tell you it is a civil matter (which it probably is) I know it seems like theft but the police will tell you to b*gger off.

Even if it was agreed as definitely theft and not civil the police rarely investigate or take action against mere theft. No matter how much is stolen or how often they target you it’s tough luck. I know from life experience.

The only course of action available if recruiters start to deduct money in this way is to get together with other contractors and either go to another agency to bargain for a better deal, or initiate a class action.

Calling the police isn’t worth the cost of a phone call or even the oxygen that you would use up talking to them.

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