The Federal Government has confirmed its commitments to independent contractors and criticised government agencies for an attack on the self-employed (The Coalition’s Policy for Small Business (August 2013); Australian Financial Review 23 September 2013, ATO told to end ‘attack’ on self-employed; Australian Institute of Company Directors Magazine 1 February 2014 Q & A with Bruce Billson).
However, there is increasing inconsistency in the taxation, administration and agency supervision of the independent contractor industry generally, and as a result of the Federal Budget 2014.
The Federal Budget 2014 confirmed the reduction of the corporate tax rate to 28.5% from 1 July 2015 and announced a 2% temporary budget repair levy on individuals’ taxable income in excess of $180,000 per annum for the 2015 to 2017 tax years (Federal Budget 2014 at 15).
The increased divergence of corporate and personal progressive tax rates, the repeal of the corporate sufficient distribution regime and the refund of imputation credits encourage income diversion to companies, retention of profits at the corporate rate and deferral of distributions to non-corporate shareholders in subsequent low tax years to reduce personal progressive tax rates (Board of Taxation, ‘Post Implementation Review of Division 7A…’, 20/12/2012 at [2.21]).
The increased divergence of corporate and personal progressive tax rates will likely increase pressure on the personal services income regimes and the private company constructive dividend regime particularly in the independent contractor industry (Div. 86 ITAA 1997; Part IVA 1936; Div. 7A ITAA 1936).
The Board of Taxation has reviewed the personal service income regime and is reviewing Div.7A and emphasises the objectives of equity, efficiency, simplicity, transparency and tax neutrality on reform(‘Post-implementation Review into the Alienation of Personal Services Income Rules’, 31/10/2009; ‘Post Implementation Review of Division 7A…’, 25/03/2014). Those objectives and the post implementation reviews are undermined by the Federal Budget 2014.
These increasing inconsistencies will need to be addressed in the Taxation White Paper to restore equity, efficiency, simplicity, transparency and tax neutrality to the taxation, administration and agency supervision of the independent contractor industry.