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Can the ATO fix its cultural problem with contractors? Australian entrepreneurship depends on a fix

Wednesday, March 27, 2019

You might recall the campaign hullaballoo we generated in late 2017 when the ATO cancelled the ABNs of 16 low-income, work-from-home, self-employed women. The ATO ‘assessed’ the women as employees. The denial of ABNs destroyed their incomes and forced many on to welfare. After 13 weeks of intense campaigning, the ATO ‘temporarily’ reinstated their ABNs.

The weird thing about this situation was that when we asked if any of the women were not paying their required tax, the ATO replied that it didn’t know. We checked and verified that all the women were paying tax as required. The ATO’s job is to collect tax. But in this case the ATO didn’t care about tax compliance. We discovered another agenda. We confirmed that powerful forces in the ATO are obsessed with the thought that there is something wrong about self-employed people. The ATO seeks to stop people being contractors whether or not tax compliance is occurring. This is the ATO acting well outside of its remit.

But some ‘happier’ news. Finally, after some 17 months of ‘investigation’, the ATO has written to the contractors telling them it’s okay to use their ABNs. But this also demonstrates that when the ATO wants to get its way, it ‘cooks people slowly’. That’s its tactic!

This particular case was/is to do with ‘Outscribe’ a small, Adelaide-based transcription business run by the Pike family. The ATO were trying to close the Pike’s business because the ATO dislikes ‘gig economy’-style businesses. Therefore the ATO directed its attack against the Pike’s contractors’ ABNs. Talk about nasty tactics! Effectively the ATO has now backed off and closed the audit. The Pike family never did anything wrong.

But here’s the sting. The ATO has announced that it will audit the entire transcription business sector starting in May 2019. So now the ATO is going to attack the whole transcription sector. Expect more ‘slow cooking’ by the ATO.  In our view, the ATO now seems to be in the business of harassing an entire sector, destroying jobs in the process. All Australian-based transcription businesses can easily move offshore. In fact this is already happening.

BUT, fortunately, there’s some countervailing pressure:
  • The Morrison government commissioned Treasury to conduct a review into the contract–employee–ABN issue. Our criticism of the ATO on this has always been based on the evidence that the ATO’s assessments defy the legal process. The ATO must take Treasury’s findings seriously, educate its staff accordingly and ensure proper assessments are made.
  • The Morrison government has made ABN cancellations appealable to the new Small Business Tax Tribunal. This is a major step forward. This will cut short the ATO’s ‘cook them slowly’ tactic and force a focus on timely assessments.
  • Supporting this is a demonstration that the AAT (which is hosting the Small Business Tax Tribunal) does undertake proper assessments. In a January 2019 AAT decision (The Qian case) the AAT reinstated Mr Qian’s ABN/GST registration on the basis that he is a contractor, not an employee as the ATO asserted. If you can be bothered reading the 21,000-word decision, you’ll see how a proper assessment is conducted. At the very least the ATO should study this as part of an effort to fix its internal incompetency in this area. Note that the Qian case was over a relatively small $3,940 GST dispute. Yet the ATO would have spent mega dollars on lawyers on this case. It really is illogically obsessed with the contractor–employee issue.
Tomorrow, some fantastic news about a big ‘beefing up’ of small business unfair contract laws.

Darren commented on 27-Mar-2019 11:38 PM
The Qian decision will have the ATO dribbling into their wheeties. It goes against everything they have been promulgating for years and about time the judiciary came on board.
Captioner/Transciptioner commented on 29-Mar-2019 07:39 PM
I'm in two camps here and am going to say the unsayable. Firstly, I appreciate those who went into bat for the restoration of our ABNs and to legitimise our micro-businesses. However, the elephant in the room is that us sole trader contractors would not have had to - run our own businesses, calculate and set aside tax from our meagre earnings, collect no super, have no holiday nor sick pay, and suffer no job security at all, spend unpaid time on administration and work at 2, 3, 4 different companies - if it weren't for the fact that we have been forced into a 'gig' economy. I have been in both TV broadcast and transcription industries since 2007 and have experienced going from being a properly paid and appreciated highly-skilled employee (with penalty rates and holiday pay and sick leave) to a hand-to-mouth existence as companies scaled our conditions down to 'no-hour' contracts. I am grateful that I can still work in industries that require an excellent standard of white-collar skill and have not gone to be a meat-packer but, quite frankly, I would be financially better off. So while I love the people that I (don't) I work for, it isn't really okay to deny that we should be employees. I think the fairest outcome would be that we are employed as casuals, have our tax and super paid and the pay-off is we can't expect continuous employment in a seasonal industry. I don't believe the majority of us set out as small businesses. It has been our last resort to continue to work at what we love. Yes, there are benefits in being able to work when we choose and at a location we choose, but that is at the expense of secure, properly paid and respected employment.
I've adjusted to this way of working and accept that this is how things are. But I need to say that we are small (micro) businesses because of the downturn in workers' conditions and the unwillingness to accept that if it weren't for the workers, companies wouldn't have the contracts and the means of existence that they do. It's unequal.
Yet, again, this is not an attack but I felt the need to point out what's actually behind the situation for us 17 transcriptionists. And the rest of the gig economy workers. It's just has not been our choice.
Ken Phillips (SEA) commented on 01-Apr-2019 11:54 AM
We’re pleased you’ve said the ‘unsayable’ and yes your points are spot on. What you’ve pointed out is the massive shift in the world of work from ‘full time security’ to 'fluid, market reactive and unpredictable work'. The problem is that this is global and across the entire economy except the public service. I can’t find any ‘full time job’ where the work is actually ’secure'. Effectively anyone can be dismissed at anytime. The only area where dismissal is heavily restricted is in the public sector and that only makes up about 20% of the workforce.

But the ‘gig economy’ is not the cause of this ‘insecure work realty’, it's just a reflection of one way this new reality is being organised and managed. Gig platforms provide a process through which work can be found and organised. It's very much like a stock exchange for work.

What you really allude to is the debate/suggestion that somehow society can regulate ’security’ in work. Yes, that’s a legitimate debate. But our campaign over the ATO is about who has the right to do that regulation. The ATO's legislative task is collect tax. Its not their job and quite illegitimate of them to seek to decide who is allowed to be in business for themselves (have an ABN) and who cannot. Those decisions must be made through the democratic process in open debate and decided on by Parliament.

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