We are asked at least on a weekly basis about contractors (both by potential employers and potential contractors) and our response is always 'be very careful if you insist on operating that way'!

To add weight to our cautious approach we can now confirm the ATO has advised that it will effectively be cracking down on taxpayers who claim to be independent contractors, by reviewing:
  • taxpayers who have reported personal services income (PSI) and who may have incorrectly self-assessed themselves as conducting a personal services business (PSB); and
  • data held in the Australian Business Register (ABR), and cancelling any Australian Business Numbers (ABNs) where records indicate that taxpayers are not carrying on an enterprise.

In relation to the ATO's crackdown on PSI, the main taxpayers they are concerned about are contractors who receive PSI (either directly or through an entity) but who are effectively employees. This issue is important because deductions and reporting obligations may be affected as well as the payment obligations of the paying company (effectively the employer).

In regards to ABNs, they will be focusing on individuals (sole traders) as they comprise almost 50% of the records on the register.

If you receive a letter regarding either issue please contact us so that a response strategy can be formulated.  In particular if they advise they are to cancel your ABN, contact us as soon as possible, as we may be able to object against the decision to cancel the ABN and have your registration reinstated.  Alternatively, if you have not yet received a letter but are either not required to hold an ABN, or have stopped operating the relevant business, we could pre-empt the ATO by cancelling the ABN before they do removing the chance of a potential 'black mark' against your name.