It’s amazing the stories we receive at ICA from self-employed people describing their business ‘woes’. They’re not complaining about the commercial risks of being in business, but rather aghast at the stupidity of many of the regulations and situations they are forced to work with. Below are ten such stories we have received. It’s these practical examples that bring home the truth about the complexities of being in business for yourself.
Building paper castles
The Tax Office seems to think that the construction sector is all about paper work. They’ve created heaps of useless reporting requirements directed at harming independent contractors. We’ve criticized this strongly in the past.An ICA member describes the red tape nonsense with a copy of the new forms to be filled out.
Following our recent telephone conversation, here is another fine example of how the ATO are making operating a small business increasingly more difficult, time consuming & non profitable. Please forward this attached example onto our new small business minister Bruce Billson.
At your recently convened independent contractors meeting prior to the recent federal election, keynote speaker Bruce Billson invited the audience to contact him with examples of bureaucratic red tape. Well here's my two bob's worth.
I recently received this form (see attached document) courtesy of my accountant. He informs me that this is effectively another layer of policing that the ATO is now making small business operators like myself comply with or risk financial penalty for not providing the required contractors details. As if the mountainous pile of paperwork to operate a small business wasn’t piled high enough, along comes this most recent offering.
Honestly, between dealing with GST, Workcover premiums, BAS statements, Payroll requirements etc, etc, etc, here comes another compliance form from our friends at the ATO. Why can’t the ATO do their own investigative work without relying on small business operators to do all the leg work?
We are drowning in red tape, paperwork and compliance issues. Help us please Mr Billson.
Northern Territory construction
Suzanne has written to Minister Billson. She tells just how complicated it is to understand and comply with the Tax Office approach on ABNs etc. She has a small building business in Northern Territory:"Dear Minister Billson,
We run a small business in construction in the Northern Territory. We have been in business in various forms (partnership and sole trader and company) for the last fifteen years.
I submit to you the following information since 1 July 2012. I appreciate that this is entirely subjective and that you have much business to attend to, however, I would appreciate a reply and an indication as to what direction will be taken by the Government with regards to this issue specifically within the construction industry.
Prior to 1 July 2012 and since the abolishment of the PPS system and the introduction of the ABN system, we have paid our workers on ABNs and ensured that they have their own insurance. This was the normal practise in this industry up here as far as we were aware.
On 1 July 2012, when the new taxable payment reporting requirement for the ATO came into being, on advice from various sources including our accountant, a compliance audit as a requirement of starting a contract and information from the ATO website, we made the decision to no longer use Independent Contractors unless they provided us with evidence that they were an Independent Contractor running a business. There was also a legislation change in the NT regarding Workers Compensation to remove the possession of an ABN as an exemption for the requirement to be covered by Workers Compensation on the behalf of the person hiring an Independent Contractor who had an ABN. This legislation is now loosely based on the ATO decision tool to determine if you are a contractor or a worker.
The reasoning behind our decision was because we wanted to ensure that we were meeting our responsibilities as a small business owner and also to guard our business against the push from the ATO and the previous government against sham contracting. We also have heresay knowledge within this industry up here that is more than likely true that some of those who we have put on wages and some of those who are still working on ABN for others have not put in a tax return for a long time and indeed do not put away for Super and do not pay their taxes and therefore should be employees rather than Independent Contractors so that they are paying their obligations and not being a drain on the tax system for others. They definitely do not fit the ATO decision tool anymore as an Independent Contractors and probably never did but the old PPS was abolished and this was what it was replaced with. These are people who just go to work to get paid. They don't do paperwork. They don't run businesses.
It also seemed that the previous government were moving the responsibility for determining who is an employee and who is self employed onto our business, which is onerous and I do not agree with, but the truth in our little speck of Australia in our business is that I'm ok with having that responsibility as long as everyone has that same responsibility and is held accountable for it.
We were met with resistance to this decision from the people who worked for us and indeed a number of them left to go and work for other blocklaying businesses who were still paying on ABN and I assume not requiring further information. We put approximately 60 employees through our books over the last financial year and of those around 10-15 were with us for the whole year, the rest came and went – this is common in the industry up here, the workers follow the work or get the poops with who they are working for and go somewhere else, or they are not kept as they are not good workers.
I first contacted Fair Work Building and Construction in August 2012 to confirm that the decision we had taken was correct. I had further contact with FWBC when it became apparent that some other hirers in the blocklaying industry up here were not making any changes to how they were hiring workers. We have sound industry knowledge that these people are working in the same way for other businesses as they would for us, so why then can another business hire them as an ABN worker and not an employee? Our business mostly does commercial contracts, however up here there is a bit of a grey area between commercial (handled by FWBC) and domestic building (handled by Fair work Ombudsman) with regard to workers because the same workers move between the two areas freely depending on what work is on. (I'm not sure if this is the case elsewhere in Australia.)
Since my first contact with FWBC, they did do an audit of blocklaying businesses in the NT Top End, this began in November 2012. We received our reply in May this year: "I wish to advise you that from the information collected during our audit and from the information provided by you, the FWBC have not (at this point in time) found any contravention under section 357 of the Fair Work Act 2009 (FW Act) which relates to sham contracting arrangement.”
We have provided them with information as requested regarding who we employ and who we have used in the past on ABNs and who we have heard are still paying on ABNs and yet there is still a small minority of hirers who are still paying ABN workers and haven't even been spoken to by FWBC. They appear to be actively avoiding FWBC.
We do not care how we pay the people we hire, all we wanted was a level playing field where everybody has the same paying obligations. Our continued contact with FWBC has been when we have heard that businesses are still paying their workers on ABN and some of these workers are the same people who are deemed to be employees to our business. Through some of my own research, I can see that some of these workers ABNs have been cancelled by the ATO Registrar (I would assume under the labour / not running a business clause), yet they continue to be paid as ABN workers by other businesses. On this note I tried to ring the ATO tax evasion line to put in a complaint but was told that I cannot complain about another business, the only way I could do it was to go online and put a submission in through 'Industry Trends', I left my name and number but have never heard back.
We feel like we have been banging our heads against a brick wall for the last twelve months when we ask for support and help with regard to reporting what we hear about who is still paying on ABNs, because we are unfairly disadvantaged simply because we are doing the right thing by hiring our workers correctly. We are disadvantaged because we cannot compete fairly with regard to pricing / quoting jobs because we have the extra costs for Super and Workers Compensation on top of what we would have paid an ABN worker, and those who are still employing ABN workers are enjoying the benefit of not having these costs, so can quote a lower price and undercut our business and still make a profit. For the last financial year, we have paid $80,000 for workers Compensation, $120,000 in Super on behalf of our employees and $340,000 on behalf of our employees in PAYG. Even just removing the cost of workers comp (previously we had ABN workers who had their own insurance) , in a family run business, you can see how our costs would decrease if we had not made this change. This is our biggest issue, by making this change, which from every avenue we are told is correct, we have been placed at a disadvantage in regards to competition.
We do not have an issue with being in competition with other businesses, the issue is that the support for our business when we are providing information about other businesses who are competing unfairly is lacking. I spoke to FWBC in Darwin again earlier this week to inform them of the following:
- Another business is still paying their workers on ABN and has not yet been spoken to by FWBC. I provided them with his name and number in May this year. He appears to be actively avoiding FWBC.
- A job that we just quoted was awarded to another business that were substantially cheaper than us. We have heard that they are still paying ABN workers. This is houses for Defence Housing Australia. I offered to give them the name and number of the Head Contractor so that they could get this businesses information.
In my frustration in this conversation I stated that we may as well go back to the old ways too as there don;t seem to have been any ramifications for doing it the wrong way if I don;t answer FWBC phone calls and was quickly told that if they found out we were doing the wrong thing then they would go straight to litigation.
My dealings with FWBC have been professional and they have indeed had some outcomes that make our workplace and industry fair as it should be, but we are still in the same frustrated situation that we were in twelve months ago on an uneven playing field.
I have watched with interest the recent media information about your new government making moves to back off with regard to cancelling ABNs and making life difficult for self-employed people. Our dilemma is what do we do now. The minority up here who have continued to pay these people on ABNs as described above may well continue to do so without any ramifications and with advantage over the competition and we seem to be stuck in the position of not being able to change how we are paying our workers. I agree that each individual should be able to chose if they want to be self-employed or an employee, but the reality is that when put into practise by us over the last twelve months, there were only a handful who could give us the information we required of them to show that they were indeed self-employed and to not have this information placed our business at an unacceptable risk.
I would like to see a clear determination from the government about how these sort of people should be hired, that is enforced. I suggest that if ABNs are still to be used for those who wish to be self-employed then they must include a Voluntary Withholding Number (20% tax rate) and Superannuation information (9.25%) and current Insurance as a requirement of obtaining or continuing to hold an ABN for a sole trader and this information should be included on invoices. This means that taxes and Superannuation are paid by their payer. This can be coordinated by the ATO. If they don't have this information then they must be employees by default.
In closing, congratulations on being voted into Government for Australia. We are looking forward to this great country moving forward in positive ways with sensible and useful productive governorship.
Fighting the bureaucracyMichael has written to the new Treasurer, Joe Hockey. We’ve reported before his battle over the Personal Services Income Tax laws. He’s explained how confusing and difficult the entire process is:
"Hi,Joe Hockey’s office requested I send the below information to your office regarding a now completed tax audit.
Please find attached an extract of my case history with the ATO from 2007. I worked with the ICA/Independent Contracts Association of Australia during the final stages of the audit.
I accept the audit outcome. I am writing to your office regarding some recommendations and learning's from the experience. I was fortunate to be a single person at the time without a family. If this incident occurred to an individual with a family, the outcome would be a lot more stressful for them as it was for me.I do accept some responsibility for the outcome, but I was forced to be punished for the entire scenario.
In summary these are the learning's and information I would like your office to consider for future legislation submissions:
- The accountant industry or suburban accountants hide behind their code of conduct or waver forms with each of their clients. The decisions they make carry serious risk. In my case I could not sue my accountant as I had no financial means to carry out the task. I also had to sell my two investments properties as the structure he created was seen as non-tax compliant. My lawyer recently stated that he has obtained large amounts of new clients due to poor practices and advice provided to individuals from suburban accountants. A large growing trend.
- My experience with the AAT also provided some important insight. The body is promoted as an independent department. What I noticed was that many ex-ATO officers hold positions at the AAT. If they are hearing audit cases similar to my case, there is a serious bias or lack of true independent representation. I hope the proposed SME Commission has quality screening processes that prevent same from happening and provide a true independent/quick acting body.
- When dealing with the ATO, it is always one way traffic. An individual has no hope of a fair hearing. In my case I always responded within the stated SLA’s, but the ATO never aligned with theirs."
Let down in retirementLee has written to us expressing frustration at how Centerlink treats his assets (mostly his family home) in reducing his pension. He’s been self-employed all his life and sees the system as totally unfair: "Hello.
The problem is worse than so, what happens when you retire?
I was sub-contracting in the transport industry between about 1991 to 2011 and been involved in various businesses since 1983. I was forced to set up a second company in 2005 because Work Cover wanted to bankrupt the family Pty Ltd business. As a non paid working director I had failed to pay workers' compensation insurance on the wages I was not paid. That is, I was not paid by the Main Contractor as required by the "award".
So I kept the assets in one company and operated the assets from another company. I assumed that, when I retired I would receive the full pension as I only had 1 share of 10,000 in the asset company, my former partner held the other 9999 (since 1990). But no! The Social Security/Pension legislation (about 2,500 pages) is so draconian that those assets are regarded as mine to such an extent that I receive a married persons pension of $150 a week (dependent wife), because the Company has around $750K in assets of which the house we consider represents at least half! If we then take into consideration that an average McMansion house price is $600K it is very sad.
Furthermore, Centrelink’s decisions are not based on accounting values or generally accepted laws but on the personal opinions of public servants interpretation of the Act. Those same public servants refuse to disclose their calculations for me to check, and they refuse to acknowledge that the definitions will apply. I think if you read my application to the SSA and their reply you will get a good idea.
Are we really, as small business men, expected to work our guts out, often living on our wives' earnings, to establish some minimum security for our old age and then be treated as criminals once we retire, only receiving a minimum pension that is reduced to nothing unless those assets are placed in a superannuation fund?
Surely, to have those assets in a family company that is still operating is equivalent to having cash in a superannuation fund? I suggest that the Social Security Act in its current form, if the Public Servants interpretation is correct, is not only unconscionable but also in breach of article 25 of UN's Declaration of Human Rights, to which Australia is a signatory!"
George: Incorporate! Why?Good morning Team,
I wound my company up 2 years ago and continued to contract to ……. as a sole trader. The CEO now tells me I must either become an employee or re-incorporate to continue. Any idea why they may have made this decision? I am 67 years old and intended working for another 2 years
Thanks and regards,
Sam: It’s toughI am a self-employed bricklayer and I am currently working for the same rates as I was in 1998. My overheads have risen over the last 15 years to the point I am now running at a loss. After 35 years in the industry I have survived the cycles but never had 1 year in negative territory until the last 2. I believe at 56 years of age I am at my peak in my ability to run a team of efficient tradesmen. We deliver an incredible level of productivity by working very hard, however we feel very oppressed by the big volume builders with the standards they have forced upon their subcontractors which has become the low benchmark for the entire domestic building industry.
Competition is healthy and markets find their own levels to some degree, but 15 years of no fundamental CPI-indexed growth is cruel and counter-productive. I have attended trade nights with like-minded people and all agree this is the worst 15-year period for hard working self-employed bricklayers ever. We will need more than a change in Government.
Viv: Replace the Carbon Tax with . . . NOTHINGKilling Australia’s carbon tax is a good idea but it should happen now, not later. But replacing it with an ETS is a very bad idea and should never happen.
The carbon tax is a known amount, simple in principle, needs no bankers or brokers, and all receipts end up in Australian hands. And it is easy to abolish at any time.
The ETS is a variable and unpredictable carbon tax. It creates business uncertainty, is complex in operation, encourages brokers, lawyers and speculators and it will drain our money to middlemen and into the European carbon credit casino. And it will create a growing army of vested interests who will forever oppose its abolition.
Neither the fixed tax nor the vacillating tax will have any beneficial effect on climate. The carbon tax should be axed, but replaced with . . . NOTHING.
Fiona: fair contract in the trucking industry?
We are a small country Victorian business established by my Dad and Uncle nearly 60 years ago. Around 6 years ago we were approached by a Victorian freight company to perform their deliveries in our local area. It took 12 months from our first conversation until the first truck of freight arrived. By which stage we were desperate for the work as we had to purchase a 12 pallet truck with tailgate in order to gain their work.So for nearly 5 years we have, in good faith, delivered their goods, with no rate increases, no extra remuneration for dangerous goods, oversize or tailgate deliveries. Their linehaul trucks turned up to our Depot for us to unload anywhere from 11pm to 5am and rarely were two nights the same, and no more than 20 minutes notice. All promises they made regarding better times never lasted.
About 12 months ago, when we said we wanted to update truck, they told us there was someone after our work. We didn't feel secure enough to update truck. For the last 12 months we have felt like we were being hunted. And as it turned out we were.
On the 31st of May, a customer advised us some guy had just delivered there and stated "I've got all ….. work, they've been sacked!". We tried to get hold of CEO to confirm and then he phoned to say he would be at our depot in two hours.
So that was it. Within two hours of hearing that from customer, we were put out of work on the spot. They had set up this guy in another depot on other side of town and from 1st June the work was his. That previous week we spent nearly $3000 extra in body repairs to truck and subcontractors to cover deliveries during repair time. All in vain. Truck has sat idle since.
We had to put off our driver who has two small children, and also had to break news to Dad. Not to mention the fact that we are still reeling, having been given no real reason for their actions. Can't believe they can legally put you out of work without notice.
Hate to think of others going through this too, good on you for your voice. Just wished I'd read it earlier.
Keep up the good fight, you are very needed indeed. Thanks for your time, hope our story spurs you on.Big business should not be immune to fairness and respect.
John: How the tax office stuffs up simple administrationHello Ken,
Many thanks for your comments on deductibility of superannuation contributions by independent contractors. You are correct, the method of declaring income is key to determinations by ATO.
I recall my attempts to make an online tax return for the 2009/2010 year were thwarted as the online system would not accept some inputs. The system forced me to declare all income as allowances, earnings, tips and director’s fees.
This has caused ATO to declare that all of my income was as an employee and thus make my claim for superannuation contributions non-deductible for failing the 10% rule.
In going through the steps necessary to “repair” my 2009/2010 tax return I find the following:
- The return I had submitted ran to 35 pages.
- That return was subject to ATO scrutiny and phone inquiries with me (about a month after it was lodged) and was found to be ok.
- There has been a subsequent review (about 20 months after the lodgement) and I am advised that my personal superannuation contributions will not be deductible.
- I replied by fax to the advice within one day of its receipt and in that communication advised ATO of the composition of my income (the employee/independent contractor split) and that I did not breach the 10% rule.
- ATO has contacted me and acknowledged that the supporting evidence I provided seems to support my position, but that they cannot accept that as an objection.
- ATO has advised that I should make a “Request for Amendment”. The kindly and pleasant officer suggested that I ought to seek an accountant’s advice.
Did I not hear recently about a proposal to make tax reporting for modest income earners a lot simpler?
That cannot come soon enough.
I’m trying to plough through the 2009/2010 return and figure out what elements of the form are to be modified. To do this I must consult:
- The advice booklet “Instructions for taxpayers TaxPack 2010” running to 132 pages.
- The advice booklet “Instructions for taxpayers TaxPack 2010 supplement” running to 80 pages.
- The advice booklet “Instructions for business and professional taxpayers Business and professional items 2010” running to 72 pages.
- Then the forms, running to about 40 pages.
Terry: I’m just trying to build a simple brick wall![Note: This is a series of emails. Best to start from the bottom and work up. It shows the difficulty (and cost) of building a simple brick wall.]
Email 5: From Terry to ICA
We build block retaining walls every day on large projects.
We built ….. golf club and a committee member liked our work and asked us to build a retaining wall between his and his neighbour’s property.
We gave him a price of $30 odd thousand and didn't hear from him until his wife phoned us and told us he had died suddenly but could we still do the work.
Of course we wanted to help........then we tried to get home warranty insurance!!!
We understand that we have to pay for insurance ($280) to cover the shonks of the industry but when we have to spend the time to dig out three years of financials it's ridiculous.
Whoever makes up these rules need their heads banging together.
Email 4: From Adam to Terry
Unfortunately, these requirements are provided for by the NSW Treasury department who administer the Home Warranty Insurance Fund. These are the guidelines that every builder who wishes to take on Residential Contracts of construction in NSW exceeding $ 20,000 must adhere to.
The downside of the situation is that Home Warranty insurance is a safety net for home owners to protect them against the death, disappearance or insolvency of the builder. I totally understand and share your frustrations, however, these are the guidelines as set out by the Home Warranty Fund and to obtain eligibility, this information must be supplied.
I would suggest you contacting …… to voice your concerns with the system.
We are more than happy to assist you in making your application, but all brokers would be requesting the same information as it is a statutory requirement for the insurance coverage.
Should you have any questions or wish to discuss, please contact me at your earliest convenience.
Email 3: From Terry to ICA
Subject: Re: Re Home Warranty Insurance
Hi Adam. CC to ICA
How ridiculous to have to go to all this trouble just to build a dividing wall between two properties. We've been a member of the MBA for as long as I can remember and this is how they treat people?
A very frustrated brickie.
Underwriters have now requested the company financials for the 2010, 2011 and 2012 years. They have advised that as this is a one-off project the usual requirements won't be as stringent. If you can forward the company financials we should have this finalised very quickly.
Email 1: To Adam from Janet
Please find attached our application to date.
Would you please review for me and give me a call to confirm it's all ok before I get it signed.
I was also going to attach a copy of Terry's tax returns for the past 3 years.
Thanks for your help.
Janet (Terry’s wife and business partner)