Stamping Out ABN Abuse

Following the Black Economy Taskforce investigations, Treasury has released its discussion paper on the proposed changes to the ABN system designed to stamp out ABN abuse.By way of background:

What is ABN abuse?

The Treasury discussion paper says that in many people’s minds having an ABN, Company or Trust structure has become a defacto "license to do business" without considering a variety of overarching regulations. This has created a situation where invoicing for wholly or principally labour based services via an ABN, Company or Trust structure confers unentitled taxation advantages to some individuals that are not available to others.It means that many contractors gain an unfair taxation advantage while actually alienating their income under the Personal Services Income (PSI) legislation. Many contractor engagements rely on written agreements to establish contracting relationships. The problem occurs when deploying largely or wholly labour-based contractors as many of these agreements have been found to be of no value whatsoever. Actions taken by various State Revenue Offices, the ATO and Fair Work Ombudsman indicate clearly that it is not feasible to simply "contract out of the law". The report clearly states that participants are abusing the ABN system (which is central to the problem); and in its current form it provides a false sense of legitimacy.

What does this mean to businesses?

Changes to the rules will curtail the ability of individuals to gain and maintain an ABN structure. In many cases this will have an enormous impact on business models that utilise labour based contractors for productivity, cost control and flexibility purposes.

Questions to Consider

Does it make sense to explore why a robust, tested and lawful contractor engagement system, where an ABN is not required at all, is available to some, but not every businesses? Furthermore, does it make sense to find out why this method of third party engagement has an ATO statutory approval outlining how contractors engaged via this framework are to be treated for taxation purposes? If you’d like a copy of the Treasury discussion paper or more information contact me at email neil@contractright.com.au or here