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Can the ATO fix its cultural problem with contractors?

by | Nov 2, 2020

Can the ATO fix its cultural problem with contractors? Australian entrepreneurship depends on a fix.

You might recall the campaign hullaballoo we generated in late 2017 when the ATO cancelled the ABNs of 16 low-income, work-from-home, self-employed women. The ATO ‘assessed’ the women as employees. The denial of ABNs destroyed their incomes and forced many on to welfare. After 13 weeks of intense campaigning, the ATO ‘temporarily’ reinstated their ABNs.

The weird thing about this situation was that when we asked if any of the women were not paying their required tax, the ATO replied that it didn’t know. We checked and verified that all the women were paying tax as required. The ATO’s job is to collect tax. But in this case the ATO didn’t care about tax compliance. We discovered another agenda. We confirmed that powerful forces in the ATO are obsessed with the thought that there is something wrong about self-employed people. The ATO seeks to stop people being contractors whether or not tax compliance is occurring. This is the ATO acting well outside of its remit.

But some ‘happier’ news. Finally, after some 17 months of ‘investigation’, the ATO has written to the contractors telling them it’s okay to use their ABNs. But this also demonstrates that when the ATO wants to get its way, it ‘cooks people slowly’. That’s its tactic!

This particular case was/is to do with ‘Outscribe’ a small, Adelaide-based transcription business run by the Pike family. The ATO were trying to close the Pike’s business because the ATO dislikes ‘gig economy’-style businesses. Therefore the ATO directed its attack against the Pike’s contractors’ ABNs. Talk about nasty tactics! Effectively the ATO has now backed off and closed the audit. The Pike family never did anything wrong.

But here’s the sting. The ATO has announced that it will audit the entire transcription business sector starting in May 2019. So now the ATO is going to attack the whole transcription sector. Expect more ‘slow cooking’ by the ATO.  In our view, the ATO now seems to be in the business of harassing an entire sector, destroying jobs in the process. All Australian-based transcription businesses can easily move offshore. In fact this is already happening.

BUT, fortunately, there’s some countervailing pressure:

  • The Morrison government commissioned Treasury to conduct a review into the contract–employee–ABN issue. Our criticism of the ATO on this has always been based on the evidence that the ATO’s assessments defy the legal process. The ATO must take Treasury’s findings seriously, educate its staff accordingly and ensure proper assessments are made.
  • The Morrison government has made ABN cancellations appealable to the new Small Business Tax Tribunal. This is a major step forward. This will cut short the ATO’s ‘cook them slowly’ tactic and force a focus on timely assessments.
  • Supporting this is a demonstration that the AAT (which is hosting the Small Business Tax Tribunal) does undertake proper assessments. In a January 2019 AAT decision (The Qian case) the AAT reinstated Mr Qian’s ABN/GST registration on the basis that he is a contractor, not an employee as the ATO asserted. If you can be bothered reading the 21,000-word decision, you’ll see how a proper assessment is conducted. At the very least the ATO should study this as part of an effort to fix its internal incompetency in this area. Note that the Qian case was over a relatively small $3,940 GST dispute. Yet the ATO would have spent mega dollars on lawyers on this case. It really is illogically obsessed with the contractor–employee issue.
Tomorrow, some fantastic news about a big ‘beefing up’ of small business unfair contract laws.

Self-Employed Australia

27 March 2019

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