It’s not as sexy a headline as the Mining Tax but did you know about the Labor Government’s proposed changes to personal services income criteria?

I attended the Small Business Summit in Brisbane in July 2010 when  Tony Abbott alluded to proposed changes to be made by the Labor Government should it be returned at the 21 August election. It was certainly the first I’d heard about it!

I’ve spent the last four weeks trying to get the ministers of both sides to respond to my inquiries about exactly what is proposed and how small business in Australia can have a voice – particularly the thousands of virtual assistants in Australia – who are going to be affected by these changes. Data from the ABS records over 1 million independent contractors as at November 2008 – Independent Contractors Australia reports 2.03 million self-employed: so we should be able to have quite a significant, impactful voice on any proposed changes to this legislation.

Currently, the rules are that independent contractors (ICs) need to meet certain criteria before they can be deemed to be independent contractors. These include things like the services should be available to the public at large, not just the person/company to whom the services are currently being provided; the IC should be able to hire others to perform the work (sub-contractors); the IC should be able to work on more than one contract at a time; the client has little input into how the IC actually performs the services; and of course, the 80% rule: the IC should not receive more than 80% of their income from the one client.

In 2007 before the last election, Labor promised not to change current tax laws for independent contractors and the self-employed, but after the election, they instigated a review by the Board of Taxation which was finalised in 2009. The review was carried out ostensibly at the insistence of the unions who felt that:

“… the legislation has failed to achieve the policy intent of reducing the extent of bogus contracting…”

Naturally enough, Unions can rightly feel threatened by ICs since ICs allow employers to supplement their workforce without Union involvement.

The report made certain recommendations to the Government for changes to PSI criteria. The report admits:

“… Some options may increase compliance costs for certain groups of taxpayers … However … the Board sees this as a necessary trade-off…”

Some of the recommendations of the review were to:

• Introduce a reporting obligation on the payer (client) and/or a corresponding obligation on the payee (IC)
• Introduce a withholding obligation on payers (clients) – similar to withholding tax for ICs with no ABN with the report recommending payers withhold on ALL payments for personal services
• GST registration requirement – whereby registration is mandatory
• Implementing Ralph Report-like recommendations – which provides a range of criteria to determine if services are provided in an ‘employee-like’ manner
• Amending the ‘results test’ – some taxpayers incorrectly self-assess as meeting the IC criteria – this option adds a fourth ‘leg’ requiring the IC to have at least two employees or to only apply the test to ICs who earn less than 80% of income from one source.

Assistant Treasurer Senator Nick Sherry has come out in support of changing the taxation arrangements which will effectively treat ICs more like employees for tax purposes. However, in the lead up to the election, the Government have gone completely silent on what they propose to do. Recall, in 2007 Labor promised not to change current tax laws for ICs and the self-employed. The report arrives in 2009 recommending changes which the Assistant Treasurer supports and now the Government has gone completely silent on what their intentions are – other than to say they have ‘not ruled out’ implementing at least some of the proposed changes.

I have tried contacting both Dr Craig Emerson (Minister for Small Business… and other things) and Bruce Billson (who is the Liberal party’s proposed Minister for Small Business should they be elected).

Dr Emerson’s office is yet to reply to my request for more information.

Vincent Sheehy, policy advisor in Mr Billson’s office spent some time on the phone with me going over the various aspects of the PSI legislation and the review proposals and also sent to me a copy of the Liberal Party’s Small Business Policy.

The intent of this blog post is not to politicise. It is merely to stress the importance for the self-employed and independent contractors in particular, to get as informed as possible in the lead up to August 21.

What can we do?

Plenty! It is believed that there are enough ICs in key marginal electorates that the Labor Party should be worried about us. We have no Union, but we do have solidarity!

We have one of the best, least competitive industries in the world. We should fight to protect it! Protecting it means protecting our livelihoods and way of life. If some of these changes to PSI criteria go through, there is every likelihood that many VAs will go out of business.

So, the best thing to do is to put pressure on your Federal Labor Minister. Write to them asking them what the Labor Party position is on changes to PSI Criteria – even mentioning in there that a guarantee not to change the criteria is required – as promised in the lead up to the 2007 election.

Ken Phillips, Executive Director of Independent Contractors of Australia has an excellent open letter on his site addressed to then PM Rudd. Copy it and use it to send to your local MP.

We can have an impact on government policy and as a collective industry we can ensure we have a voice with regard to any proposed changes. But we can’t just sit by and do nothing. It’s time for VAs, ICs and the self-employed to protect the way of life we enjoy and put some pressure where it’s going to be most effective.

©Lyn Prowse-Bishop – www.execstress.com

Reference:

Post-Implementation Review – Alienation of PSI Rules