Budget 2018/19: No Tax Deduction for Payments to Contractors (II)

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Insights From MCA Accountants

Budget 2018/19: No Tax Deduction for Payments to Contractors (II)

The Coalition will look to deny tax deductions to businesses that make payments to contractors without an ABN. Basically if they aren’t paid as wages (and reported to the ATO), and not as a contractor with an ABN – don’t do it.

We note that ATO is making it difficult (by design) for the basic subbie to get an ABN. This measure is to stop businesses from paying those subbies (that should by Law be on wages with the business) while avoiding their obligations.

The short summary on why contractors are a problem for the Government is:
a) Most payments to contractors are not reported to the ATO, so a contractor could put one figure on a tax return, but have actually received another
b) Contractors generally have no tax withheld from their payments, so if a contractor doesn’t do a tax return for 5 years, the ATO can easily be out of pocket $150k. If a wage earner did the same, the ATO has already had the $150k paid to it
c) Businesses use contract arrangement to try and avoid super, leave, penalty rates, and other entitlements that employees have
d) The flow on effect is that contractors have lower super balances, and therefore rely on Government services more in later years

Make no mistake, contractors are a target.

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