BRCA’s accountant – Michael Huntington, Principal at Duncan Dovico Accountants and Advisers – has written an article to provide BICSI Registered Cablers with some clarity on two key taxation matters that may impact registered cablers this year – subcontracting and motor vehicles.
SUBCONTRACTOR OR EMPLOYEE – WHAT SUITS YOU MAY NOT SUIT THE TAX OFFICE
Working as a subcontractor is an attractive option for many people, particularly in the construction and building services industries. The main attraction is the flexibility it provides to both worker and employer.
However the Tax Office is actively auditing subcontracting arrangements because it believes that many of the arrangements currently in place are actually employment arrangements. In 2012, the Tax Office won a case in the Federal Court against a large company arguing that their team of workers were all employees and not subcontractors. The result was that the employer was forced to deduct PAYG Withholding, pay additional superannuation on the amounts paid to the workers, and also pay penalties to the Tax Office.
This has given the Tax Office the confidence now to pursue other taxpayers on this issue. The existence of a contract whereby the worker agrees that they are a subcontractor and will pay their own superannuation and entitlements does not help at all. According to the Tax Office, operating through a corporate structure also doesn’t necessarily mean you are not in an employer/employee arrangement.
The main difference between a contractor and an employee is that an employee works in – and is part of – your business, whereas a subcontractor runs his own business.
Subcontractors are free to subcontract or delegate work; they are paid based on a result achieved based on a quote; they provide their own tools and equipment; and they take a commercial risk. They are not guaranteed to be paid if the work is not done to an appropriate standard.
On the other hand, an employee cannot pay someone else to do the work; is paid for the time worked; is provided with most of the tools required; and does not take any commercial risk.
Both employers and workers should be careful when considering the type of arrangement they enter into.
SAVING TAX BY PURCHASING A VEHICLE
When a car is used for work or business, the costs of the vehicle become a tax deduction. How to record and substantiate these costs is an important part of the process.
In considering what type of vehicle to buy, the Income Tax laws need to be considered. But in deciding on the correct structure for the purchase, the GST and Fringe Benefits Laws need to be considered as well.
Maximising your tax deductions and GST credits and minimising the impact of Fringe Benefits Tax (FBT) can make a big difference to the overall cost of the vehicle. Whether to include the car as part of a salary package is also an important consideration.
If you are a sole trader or an employee, there are four different possible methods for calculating the deduction which is available.
On the other hand, if you operate your business through a company or trust, you have the option of claiming a full deduction for the cost of owning and running your car, but FBT needs to be paid on the private use of the vehicle.
There are exemptions to the requirement to the Fringe Benefits rules. The following are exempt from FBT:
Panel vans and utility trucks not principally designed to carry passengers, where private use is limited to home to work travel and other private travel that is minor, infrequent or irregular.
It is up to you to prove to the Tax Office that there is a limit on private travel, and that can be quiet difficult to do.
The rules for claiming FBT under the statutory formula method have changed. The new rules began on 10 May 2011 and are being phased in and come into full effect on 1 April 2014. After that date, all cars will have the same statutory rate no matter how many kilometres they travel.
Anyone claiming motor vehicle expenses through a corporate structure should check with their accountant how these changes affect them.