Sham contracting is the situation where employees are classified as independent contractors instead of employees.

The employer v contractor issue has long been on the ATO hitlist, and they believe that when times are getting tough, businesses may be tempted to cut corners to stay afloat or prop up their cashflow. Employers enjoy the flexibility of having a contractor rather than an employee both in terms of hours worked to be in line with the business requirements.

The ATO’s strategy for tackling non compliance in this area focuses on businesses that do not withhold payments from workers as required and fail to make superannuation guarantee contributions. This can be done by payment of cash wages or by the ‘employee’ operating with an ABN.

In an effort to help businesses, the ATO has developed an online decision support system to assist businesses making the correct decision as to whether a worker should be treated as an employee or contractor for tax and superannuation purposes – http://www.ato.gov.au/businesses/content.asp?doc=/content/00095062.htm

If you are unsure, give Mike  a call on 0401 631 904

Small business owners need to be aware of recent changes to the way the ATO calculates income in order to qualify for the co-contribution benefit.

For the 2011 financial year, the Federal Government will match contributions that individuals make to their super fund, as long as that individual meets the income test.

From 1st July 2010, an individual must earn less than $31,920 to qualify for the maximum co – contribution of $1,000. For every dollar earned over this threshold, the co-contribution reduces by 3.35 cents until it cuts out completely at the upper income threshold of $61,920.

What has changed is that reportable employer super contributions (ie those contributions above 9%) are included in earnings for the co-contribution benefit as is fringe benefits.

Small business owners need to consider their total income, as defined by the co-contribution benefit – when looking at the tax efficient way to extract money form their private businesses.

If you need to discuss these changes, please call Mike on 0401 631 904