The importance of knowing if your worker is a contractor or an employee
Employers must know whether their workers are employees or contractors because the tax, superannuation and other government obligations are different depending on the worker’s status:
- If a worker is an employee, PAYG withholding will need to be withheld from wages. The employer must report and pay the withheld amounts to the ATO, pay superannuation at least quarterly for eligible employees, and report and pay FBT if fringe benefits are provided to employees.
- In contrast, if a worker is a contractor, usually PAYG is not withheld from payments - unless they have not quoted their Australian Business Number (ABN) in which case PAYG withholding must be deducted at the top marginal tax rate. FBT is not payable if non-cash benefits are provided to a contractor. However, depending on the labour services contract or arrangement, especially if the contract is principally for a contractor’s labour, superannuation guarantee contributions must be made to a complying superannuation fund.
A recent ATO private binding ruling found that that based on the specific facts in that situation, a commission-only salesperson was deemed to be an independent contractor and the contract was not principally for the salesperson’s labour. Therefore, there was no obligation to pay 9.5% in superannuation contributions on the commission paid to the salesperson.
Establishing whether a worker is an employee or contractor may be difficult. The whole working arrangement should be examined to determine whether the worker merely works in the business (i.e. an employee) or whether the worker operates their business and performs work for the business (i.e. a contractor).
Incorrectly treating employees as contractors can subject businesses to PAYG withholding penalties and superannuation guarantee charges. Please contact us if you are unsure of the correct status of your workers.
Lastly, avoidance of workers compensation premiums can also result in significant penalties.
Who should be assessed on interest income of joint bank accounts?
As a general rule, interest income on a bank account will be assessed to the person who beneficially owns the money in the account. Broadly, a beneficial owner will enjoy the benefits of ownership even if the beneficial owner is not the legal owner (i.e. the person who has legal ownership or title to the asset).
If bank accounts are held jointly, the interest income will be assessed to the account holders in proportion to their beneficial ownership of the money in the account – assumed to be in equal shares unless evidence indicates otherwise.
If a parent operates an account on behalf of a child under 18 who beneficially owns the money in the account (e.g. the parent operates as a trustee), the interest income will be assessed to the child potentially at higher tax rates under the unearned income rules. A trust tax return is usually unnecessary in these circumstances.
However, if the child does not have beneficial ownership of the money (e.g. the parent deposits their money into the account and can make withdrawals from the account to pay for the child’s school and other expenses), the parent, and not the child, will be assessed on the interest income earned from that account.
Nexia Australia has experience with Research & Development (R&D)
Nexia Australia have assisted clients to register their R&D activities with AusIndustry before the 1 May 2017 deadline, so that such companies conducting innovative R&D work should be able to claim the R&D offset (at either 40% or 45%) in their 2016 tax return.
For more information on the R&D incentive – and how it can benefit your business - please see our recent Nexia tax update. Alternatively, please contact your Nexia representative so that we can talk to you about ideas that may benefit your business.
