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ATO Focus: contractors vs employees

The rapid growth of contractors in Australia has prompted the ATO to review those arrangements where the ATO believes there may be a risk of employees being incorrectly treated as contractors. The ATO is concerned that some employers might be incorrectly classifying their employees as contractors in order to avoid having to pay PAYG Withholding, workers compensation insurance, superannuation guarantee, payroll tax and Fringe Benefits Tax.

The ATO have explicitly stated that quoting an ABN does not automatically make a worker a contractor for tax purposes. The facts surrounding the arrangement will need to be examined in order to determine whether its nature is employment or contract. In particular, the ATO is focusing on the building and construction industry, with the newly introduced requirement for the industry to report the payments made to the contractors.

However, the ATO’s scrutiny is not limited to the building and construction industry. If you are running a business that employs a number of contractors, please contact your Ruddicks adviser to discuss this issue and to ensure that you are not inadvertently classifying your workers incorrectly.

Please note that 30 June 2012 falls on a Saturday! This means that electronic funds transfers should be planned in advance to ensure that these transactions are processed by close of business on 29 June 2012.

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