What every business needs to know about contractors

Beware of arrangements involving contractors

Personal services income

If you operate a business that relies on your personal efforts and skills to generate income then you need to be aware of the rules surrounding the diverting of personal services income.


Unless certain tests can be satisfied you will be denied access to a range of tax deductions normally available to businesses.


Even if the rules haven’t affected you in the past, this is an annual test and you might be caught if your circumstances have changed.


If you are concerned about your position, talk to us today for clarification.

Superannuation guarantee and other tax obligations

The use of contract labour has increased significantly over recent years.  Many businesses however are failing to give adequate attention to the risk of misclassifying employees as contractors for tax purposes.  What the parties decide to call the relationship is irrelevant for superannuation guarantee, payroll tax, or workers compensation – it is the characteristics of that relationship that determine liability


Where a business engages contractors and misinterprets the relationship, they can face significant liabilities and exposure to penalties and interest.


As a general rule of thumb, businesses that hire independent contractors are not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations.  However, the ATO’s strict position on what is an employee for tax purposes has been upheld in a number of recent court cases to the detriment of the employer involved.  Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time.

Accounting tips – Accord Accounting,

Accountants in Sydney and the North Shore

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Take advantage of our small business accounting services during which we will help you to refine your needs and consider an accounting and tax planning solution for your business going forward… make an online enquiry today or call us on +61 2 9419 5322 and let us help you solve your accounting or tax problems.

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