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23 March 2011

Australia’s one million contractors face tougher scrutiny from three regulators as the main construction union alleges tax revenue of up to $2.4 billion a year is being lost through sham arrangements in the building industry. Engineers contracting through ABN’s and their employers should ensure that agreed work arrangements comply with legitimate contracting structures. According to today’s Australian Financial Review, the Fair Work Ombudsman will conduct audits on three industries to identify cases where employees are being treated as contractors to avoid paying entitlements and to cut labour costs. Sham contracting can also lead to non-payment of income tax by workers failing to report income and overstating expenses, or restructuring their business to cut their personal tax bill. While commercial builders who use contractors are estimated to save a minimum of 25 per cent on standard wages and 40 per cent on overtime hours, plus savings on leave, taxes and other payroll expenses. The Australian Taxation Office has noted that contracting had long been common in construction, but was spreading into other industries such as call centres, cleaning, security, logistics, retail, tourism and hospitality, education, aged care, health and telecommunications.

According to the report:

• The Fair Work Ombudsman is investigating 26 matters regarding potential contravention of sham contracting provisions.
• From July 2009 to December 2010, the tax office completed 1474 field cases, raising average adjustments of $24,078 per case nearly a third of which were superannuation guarantee payments.
• The Tax Office is conducting 4304 field audits to uncover sham contractors by the end of 2013.

Excerpt from: The Australian Financial Review (www.afr.com), 23 March 2011