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TCS Contractors and ABN

Any TCS contractor, whether an individual operating under their own name or a registered business name (sole trader), or an entity may apply for and obtain an ABN. However different tax rules do apply. An individual or sole trader, whether with an ABN or not, must have PAYG tax withheld.

An entity with an ABN will not have PAYG tax withheld, and does not need to complete a TFN declaration. That entity is responsible for its taxation affairs. An entity without an ABN must have 46.5% PAYG tax deducted.

TCS Contractors and GST

If the contractor is an individual or a sole trader with a registered business name, GST cannot be charged to the agency. Withholding tax applies. The contractor may be registered for GST and may include GST in the charge rate for other business arrangements.

If the contractor supplies his/her services through an entity and that entity has an ABN and is registered for GST, then GST should be included in the contractor rate agreed to between the contractor and the agency. PAYG tax is not withheld under these circumstances. The entity is responsible for reporting to the ATO for its PAYG instalments and GST.

Tax Issues for Independent Contractors

This is intended to be a summary of general information related to the tax situation for Odco contractors, following the July 2000 reforms to the tax system. It does not constitute legal or taxation advice and must not be construed as such

Agency Contractors and PAYG

Odco

contracting is aptly described in the Labour Hire provisions of the PAYG system, refer Guide to PAYG for Business, p32.

TCS has a clear statutory responsibility to withhold and remit PAYG on behalf of individual contractors, and supplies all contractors with a remittance advice detailing that withholding.

Rate of Tax Withheld

Contractors have the option of being taxed under the PAYG tax tables or may elect to have tax withheld at a flat rate of 20%, as all licensed Odco

agencies are party to a Class Variation. Verification of this Class Variation can be supplied if required.

Contractors may also elect to have a higher rate deducted, but must complete an Upwards Variation Withholding Declaration and lodge that with the agency.

The option of either the tax tables or flat tax enables the contractor to assess their personal tax situation, in conjunction with their tax or financial advisor, and choose the method that best suits their affairs.

Contractors trading as an entity - see section below.

Alienation of Personal Services Income
- or the '80%' Rule

Contractors providing their services through an agency may be affected by the alienation of personal services income measure.

This rule does not apply to individual contractors or sole traders. This only applies to contractors supplying their services through structured entities.

The ATO results test is a trigger for other tests to determine the tax nature of the entity's business. It does not affect the obligation of the agency to withhold PAYG tax where it applies.

Simplified Tax System

Contractors operating their own business may be able to elect to pay Tax on the Simplified Tax System. As a result they may be able to claim the Entrepreneur's Tax Offset (ETO) which can reduce annual tax payable by 25% for income up to $50,000 per annum reducing by 1% for every $1000 of income from $50,000 up to $75,000 per annum.

The ETO was first made available from 1 July 2005. The offset may not be available if contractors obtain income from other sources.

Professional advice, from a registered tax agent is recommended, and, if after that advice a contractor elects to pay tax under the Simplified Tax System, the following indicates the potential annual taxation savings available.

Gross weekly payment $400 Entrepeneurs Tax Offset saving - $585 pa.
Gross weekly payment $600 Entrepeneurs Tax Offset saving - $1,144 pa.
Gross weekly payment $800 Entrepeneurs Tax Offset saving - $1,898 pa.

Superannuation

The agency is not legally required to make SGC payments to a superannuation fund for contractors. The agency does however include a component in lieu of superannuation in the payment made to the contractors to ensure no disadvantage.

Contractors are not legally required to make payments to a superannuation fund however TCS encourages them to make their own personal contributions to a superannuation scheme of their choice. Contractors may make arrangements with the agency to assist in the administration of their personal superannuation deductions.

Personal superannuation contributions are tax deductible for a contractor if total annual income, from sources other than contracting, (employment) do not exceed 10% of that contractor's total annual income.

As from the first week in October, this Agency is required to make SG Superannuation (9%) payments into an approved superannuation fund for sole traders offering their services through this Agency.