CONTRACTORS on the old Prescribed Payments System will face further tax change from July 1.
This class of contractor has been quarantined from the Australian Tax Office’s alienation of personal services income provisions for the past two years.
They will need to satisfy these provisions or risk being treated as employees for tax purposes, therefore losing a large number of their business deductions.
The ATO will soon be hiring an additional 2,700 auditors, with about 220 of these expected to come to WA.
CPA Australia WA president and former ATO deputy commissioner, Graham Harrison, said most contractors on the old PPS were not prepared for the changes.
“The rules for calculating their tax will change and that will catch up with them in the 2002-03 income year,” Mr Harrison said.
Most contractors will be able to pass the primary results test that allows a contractor to qualify as a personal service business and avoid being taxed as an employee.
To pass the test a contractor must be contracted to produce a result, provide its own tools of trade and be required to repair any defective workmanship.
Mr Harrison said the ATO would also be targeting white-collar contractors.
“Display home sales consultants, supervisors, estimators and project managers will have problems with the alienation provisions,” he said.
Institute of Chartered Accountants in Australia tax spokesman Roger Sullivan said a lot of contractors on the old system would have forgotten that the change was coming.
“A lot of these people are doing their own tax returns and if they don’t factor in this change then they are simply putting their head in the lion’s mouth,” Mr Sullivan said.
Both the Master Builders Association of WA and the Housing Industry Association have been holding workshops for their members to prepare them for the changes.
HIA executive director John Dastlik said the vast majority of contractors in the housing industry would pass the results test.
“If they don’t there are some other tests for them to fall back on,” Mr Dastlik said.
