Commissioner targets the cash economy, contractors and employees

The Commissioner of Taxation has released his annual Compliance Program for the 2011-12 year. This is an annual report in which the Commissioner outlines matters of concern and highlights the intended action to be taken by the Australian Taxation Office (ATO) in monitoring and treating those concerns and the consequences for taxpayers who do not comply.

The cash economy is a constant target for the ATO and this year they will pay close attention to the plastering and coffee shop industries. The ATO have found that poor record keeping contributes to non-compliance in the cash economy and this will be a focus of their compliance and help and education strategies.

Contractors who operate as sole traders or through companies, partnerships or trusts will be the subject of a test-case program to determine whether the income derived is personal services income (PSI). Income from a contract is PSI if more than 50% of the income is attributed to the skills, knowledge, expertise or efforts of the person performing the services.

If income is classified as PSI the contractor’s operating structure is ignored and the income is assessed to the individual contractor personally.

The ATO has also had a focus on sham contracting arrangements since the recent release of a Taxpayer Alert. Entities which engage workers as purported contractors in order to minimise employment on-costs are being targeted. Even if such arrangements are genuine, employer entities could still be required to pay superannuation contributions as the definition of “employee’’ under superannuation legislation is broader than under income tax law.

Concern about the increase in work related expenses in recent years has prompted the ATO to issue advisory letters and publish guides for specific occupations. This year the ATO will closely examine the work related expense of employees in the following occupations:

Real estate employees;
Carpenters and joiners;
Earthmoving plant operators; and
Flight attendants.

Making a false and misleading statement in a tax return will lead to the imposition of administrative penalties and in more serious cases, prosecution.

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