Costello green light to tax rorters

Date: 17 April 2000

The ACTU has accused Treasurer Peter Costello of doing an about-face on a commitment to close a loophole that allowed sham contractors to avoid paying tax.

ACTU Secretary Mr Combet said the legislation produced last week by Mr Costello to deal with the taxation treatment of "independent" contractors made a joke of the tax system.

"The Howard Government has given the thumbs up to tax rorters by not implementing the Ralph recommendations on business tax," Mr Combet said.

"Sham contractors make a joke of the income tax system which applies to ordinary workers whose tax comes straight out of their wages. Treasurer Costello vowed to close this gaping loophole as part of the overhaul of business tax, but it is now clear from the proposed legislation that he will not do it.

"Was Peter Costello rolled in his party-room, or was he a willing hostage to political expediency? No matter which, he has back-flipped on his commitments of 24 November 1999 to implement the Ralph committee recommendations in full and close off this blatant tax rort."

Mr Combet said the four new tests outlined by Mr Costello undermined the findings of the Ralph report. For all practical purposes, an employee who worked for wages one day could work the next day as a subcontractor, either on their own initiative or at their employer's behest. The same work would be done on both days but the 'contractor' could dodge the tax obligations and pocket the difference.

"The current arrangements for contract workers at least requires some withholding tax be paid under the Prescribed Payments System, but that system is to be abolished from July 1," Mr Combet said.

"With Mr Costello's four new tests, paying personal income tax becomes optional for anyone who sets up as a contractor. The loophole is widened even further.

"These new rules increase the pressure to set up a sham contractual arrangement for the purpose of dodging personal income tax. Unions have stood firm against this pressure in the national interest, but their stance is becoming more difficult in light of Mr Costello's new standards of propriety.

"Mr Costello has rorted Ralph. The effect on the budget bottom line of this Costello capitulation is huge - up to $3 billion annually according to John Ralph. In no way can the business tax package be depicted as revenue neutral."

The ACTU will lobby the Democrats and the ALP to stand firm against the legislation.

COSTELLO'S FOUR NEW TESTS

To pass muster as a "legitimate" contractor, it appears that only one of the four criteria below will need to be satisfied:

Costello's new test

1. Has business premises - What does it mean? [Is there a shed out the back?]

2. Has two or more unrelated clients - What does it mean? [Work all year for one client and do an odd-job one Saturday for someone down the street]

3. Not a loss-making operation and supplies own tools. - What does it mean? [Do you have a mobile phone? Or a laptop? Or a hammer and drill?]

4. Has one or more employees who perform at least 20% of the work - What does it mean? [Spouse answers phone from time to time)

   For further information

   Contact:	ACTU Media Office: Brenda Finlayson
   Union:	ACTU
   Phone:	0413 507 260
   WWW:	http://www.actu.asn.au/

   
   
   

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