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Concerns over commercial reality of personal services income measures

Publication date: 12 Nov 99 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has serious concerns over the bureaucracy's ability to convert principles outlined in the Treasurer's Stage Two Response to the Review of Business Taxation's recommendations on alienation of personal services income into targeted and commercially sensible legislation.

"The Taxation Institute acknowledges that there have been long standing problems with interposed entities such as the single IT Specialist operating as company for contracting purposes," said Taxation Institute of Australia President, Mr Gordon Cooper.

"However, there are a number of criteria outlined in the Government's response which appear to apply subjective tests to determine who falls into the personal service business net and who does not," he said.

"For example, the statement from the Treasurer says that the provisions will not apply to a personal services business which is one that 'accepts some entrepreneurial risk in the way it provides its services'."

"It could be argued that anyone taking on a new small business is engaging in entrepreneurial risk. How will this be defined and measured and then applied in a commercially sensible manner?"

"There also needs to be clarification whether head contractors will be required to make superannuation guarantee payments on behalf of sub-contractors," Mr Cooper said.

The Taxation Institute highlighted the fact that previous attempts by Government to regulate this area had failed due to the bureaucracy's ignorance of commercial reality in drafting effective legislation.

"Previous legislation designed to address the alienation of personal services income has failed because of poor drafting and the inability of the Tax Office to utilise its powers effectively," Mr Cooper said.

"The Taxation Institute urges caution in the drafting of these new provisions to ensure the legislation is properly targeted and will not affect genuine operators such as tradespeople who may earn the bulk of their income from one service requirer but in fact employ other persons in order to provide the required service."