ATO highlights focus areas for 2012/13: Sham contracting high on its list

The Australian Taxation Office has released its 2012/13 compliance program, with information for individuals and micro enterprises, prompting another warning about sham contracting.

Tax Commissioner Michael D’Ascenzo said in a statement the ATO is “openly setting out focus areas” for the year ahead in order to help people make the right decisions.

Among other things, the ATO will focus on businesses meeting their superannuation obligations, with a continuation of compliance activities focused on high-risk industry groups.

“We will be scrutinising cafés and restaurants, real estate businesses, and carpentry businesses in home building or construction,” D’Ascenzo said.

Here’s a snapshot of the 2012/13 program:

Individuals

The ATO will focus on incorrect or fraudulent refunds for both over-claims and deliberate fraud.

It will continue a focus on occupations that have shown a pattern of relatively high levels of claims. This year, it will review work-related expenses for IT managers and plumbers.

It will continue to investigate high-income earners involved in tax avoidance schemes, with a particular focus on widely-marketed financial products that promise substantial tax benefits.

Finally, it will use third-party data to detect omitted income from dividends and interest, capital gains, and foreign source income.

Micro enterprises

In 2011-12, micro enterprises accounted for 10% of total collections, with around $2.6 billion collected as part of the ATO’s compliance activities.

The ATO conducted 1,100 reviews and audits to ensure employers weren’t avoiding their obligations by requiring their employees to have an ABN.

It contacted 95,000 micro enterprises through its cash economy compliance activities, raising $150 million. Overall, collectable debt was $10.1 billion.

This year, the ATO will conduct reviews into the plastering and cafe industries, with a focus on unrecorded and unreported cash transactions.

Ensuring businesses are correctly registered in the tax and superannuation systems will be a focus, the ATO says. Around 35,000 GST registration application reviews will be conducted alongside 500 enterprise reviews.

Sham contracting

According to the ATO, there will also be a further crackdown on sham entities.

In light of this announcement, commercial law firm TressCox Lawyers has issued a stern warning to business owners with regard to sham contracting.

“There is certainly a heightened focus on enforcing sham contracting provisions, so it’s imperative employers take heed of the warnings,” TressCox partner Nick Duggal says.

“Businesses need to be more aware of the distinction between contractors and permanent employees because the ATO is specifically targeting this area.”

“To be regarded as a contract worker under the [Fair Work] Act, the employer cannot have control over the manner in which the contractor undertakes tasks on a day-to-day basis.”

“Secondly, if a full-time employee provides services that would allow them to be in business for themselves, then they are more likely to be considered a contractor, not an employee.”

Duggal says employers should:

• Undertake a review of their contracting arrangements to ensure they are properly categorised.
• Seek advice or become familiar with the legal tests for determining whether a worker is an employee or an independent contractor.
• Train managers involved in recruitment to identify a true contracting arrangement and understand the operation of the sham contracting provisions of the Fair Work Act.