Tax issues for independent contractors working through A-REP.
This is intended to be a summary of general information related to the tax situation for A-REP contractors. It does not constitute legal or taxation advice and must not be construed as such. It is drawn from information supplied in various ATO information sheets and Rulings.
What are A-REP Contractors?
A-REP contractors are independent self-employed contractors who provide their services through A-REP, under arrangements where:
No common law employment exists.
The contractor provides his/her services on a daily basis, on a contract with A-REP.
A-REP arranges for the contractor to provide his/her services to a client business of the agency.
There is no contract of any sort between the contractor and the end-user business.
A-REP Contractors and PAYG
With the reforms of The New Tax System which commenced in July 2000, all workers are taxed under PAYG regardless of their common law status. A-REP Contracting is aptly described in the Labour Hire provisions of the PAYG system.
A-REP 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 and will also supply an annual PAYG summary.
Rates of Tax Withheld
A-REP Contractors may elect to be taxed using the prescribed tax tables.
A-REP Contractors may elect to have tax withheld at a flat rate of 20% (or in some circumstances 25%), as A-REP is a party to a Class Variation (click herefor details).
A-REP Contractors may also elect to have a higher rate deducted, but must complete an Upwards Variation Withholding Declaration and lodge that with A-REP.
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, being a company, partnership or trust, with a valid ABN, do not have PAYG withheld. However if working as a real estate sales pereson, they must hold a full licence.
A-Rep Contractors - Annual Return
Income earned by A-REP Contractors is business income – it is not salary & wages income.
A-REP Contractors, who are individuals (Sole Traders), with or without a Business Name or ABN, receive a PAYG Payment Summary at the end of the financial year. This Payment Summary is headed ‘Labour Hire & Other Specified Payments’.
A-REP Contractors who trade as an entity (company, partnership or trust) and provide a valid ABN do not receive a Payment Summary as above, but will receive a detailed statement. If also registered for GST, this amount will be included in their rate.
Alienation of Personal Services Income (or the "80/20 rule")
Contractors providing their services through an agency may be affected by the alienation of personal services income measure.
Does not apply to individual contractors or sole traders.
Only applies to contractors supplying their services through structured entities.
The ‘results test’ is a trigger for other tests to determine the tax nature of the entity’s business.
ODCO® Contractors and Using an ABN
Any A-REP 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 and needs to complete a Tax File Number (TFN) declaration. This category applies to most current contractors.
An entity (company or other similar structure) 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 (company or other similar structure) without an ABN must have the top rate (now 46.5%) of PAYG tax withheld.
ODCO® Contractors and GST
Because of the Labour Hire Rules, 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.
As a result of extensive negotiations with the ATO, from October 1 2008, A-REP arrangements were deemed to be covered by the SGAA.
Contractors will also be able to make their own personal contributions to the superannuation scheme of their choice either as post tax or as "salary sacrifice".
The Client Rate and GST
A-REP is required to include GST in its charge rate to the end-user client business. It is a Taxable Supply.
The client business will claim the GST as an input tax, as with any other taxable supply, when it completes its BAS statements.
For more information, contact A-REP on 07 3378 0189
Copyright: This document and any attachments are subject to copyright law. They are confidential and intended solely for you, the client or contractor, to whom they are given.
Advice: Information contained in this document is produced with all due care and diligence. It is not legal or taxation advice and must not be construed as such.