Each August, the tax office publicly releases its targets for the year. It’s a valuable guide for taxpayers – forewarned is forearmed.
Some common tagets include: Investors (with key areas of risk including the sharemarket (46% of people now own shares), and capital gains events, particularly the following areas.
Rental properties are a long-time problem area for the tax office. Common errors are regularly being made, and the tax office will soon be writing to people who claimed rental deductions for the first time last year with information on the "do’s and don'ts".
The tax office will also be writing to people who have been selected because they have some of the following characteristics: Unusually high claims for rental deductions; low rental income in relation to rental deductions; high claims for interest expenses’; and high claims for borrowing expenses.
Data-matching is a major tax office weapon here. This might seem like an obvious target, but it is one taxpayers can easily overlook. Accounts closed or money moved during the year can lead to amounts of interest earned being overlooked, but the tax office’s data-matching process will show this up.
The tax office heavily uses data-matching with the states and territories regarding sales of investments. Remember your home is usually expempy from CGT - your holiday home is not.
Again, obvious; but SMEs and others should be wary of schemes promoted to them that claim what seem to be too-good-to-be-true tax outcomes.
Don't forget about the new superannuation caps. Those who have sold assets to invest in superannuation may have a CGT liability that will need to be disclosed correctly.
The tax office will expand its review of highly paid executives and directors, generally people with income over $1 million. The majority of adjustments made by the tax office relate to benefits acquired under employee share schemes.
The tax office will look at the growth in work expense claims, particularly by nurses (with a focus on self-education), medical practitioners (travel and entertainment expenses) and chefs (expenses for travel between home and work, and for pre-vocational courses). More generally (not just in the above occupations), the tax office will be looking at anomalous or "out of pattern" claims for self-education, car and travel expenses. The common adjustments made relate to car expenses, travel expenses, self-education, and ambit claims for clothing and laundry expenses.
The tax office will be expanding its coverage of income tax issues this year. This includes; sale of assets and investments, foreign source income, and employer obligations (including superannuation).
The tax office has been writing to some taxpayers encouraging them to make, if required, a voluntary disclosure of undeclared income held offshore.
Lawful authority to command
|Under a contract of service, the payer usually has the right to direct the way in which the work is done. Of course, where the nature of the work involves the professional skill or judgement of the worker, the degree of control over the manner of the performance is diminished. What is important is the lawful authority to command that rests with the payer.||The hallmark of a contract for services is that the contract is one for a given result. The contractor works to achieve the results in terms of the contract. The contractor works on her/his own account, i.e. a plumber.|
How the work is performed
|Tasks are performed at the request of the employer. The worker is said to be working in the business of the payer.||An independent contractor enters into a contract for a specific tasks or series of tasks. The contractor maintains a high level of discretion and flexibility as to how the work is to be performed. However, the contract may contain precise terms as to materials used and methods of performance, and still be one for services.|
|An employee bears little or no risk. An employee is not exposed to any commercial risk. This is borne by the employer. Further, the employer is generally responsible for any loss resulting from poor work.||An independent contractor stands to make a profit or loss on the task. She or he bears the commercial risk. The contractor bears the responsibility and liability for any poor work or injury sustained in the performance of the task. Generally a contractor would be expected to carry her/his own insurance policy.|
Place of performance
|A worker under contract of service will generally perform the tasks on the payer's premises.||A contractor on the other hand will generally provide all their own assets and may work at a number of locations.|
Hours of work
|An employee generally works standard or set hours.||An independent contractor generally sets their own hours of work.|
|An employment contract will generally provide annual leave, long service leave, sick leave and other benefits and allowances.||Generally an independent contract would not contain leave provisions (although mere non payment does not simply make the contract one for services).|
|An employee is generally paid an hourly rate, piece rates or award rates.||Payment to an independent contractor is based upon the performance of the contract.|
|An employee is generally reimbursed for expenses incurred in the course of employment.||An independent contractor is responsible for their own expenses.|
|An employee is generally recruited through an advertisement by the employer||An independent contractor is likely to advertise their services to the public at large|
|An employer reserves the right to dismiss an employee at any time (subject to any state or federal laws).|
An independent contractor is contracted to complete a set task. The payer may only terminate the contract without penalty where the worker has not fulfilled the conditions of the contract. The contract will usually contain terms dealing with defaults made by either party
|An employee has no inherent right to delegate tasks to another. However, there may be a power to delegate some duties to other employees|
An independent contractor may delegate all or some of the tasks to another person and may employ other persons.
|Plant and equipment is usually provided by the employer|
The contract usually specifies who is to provide the plant and equipment. This is usually the responsibility of the contractor.
Scheduling of work
|An employer determines or controls the time frame within which the work is to be performed.|
The work would be performed in accordance with agreed schedules and consistent with the obligations under the contract.
Expectation of work
|An employee usually has an ongoing expectation of work.|
A contractor is usually engaged for a specific task.
Method of payment
|An employer usually pays an employee according to an award or employment agreement.|
A contractor usually invoices the person who engages them for their services
|An employee pays PAYG tax which the employer pays on behalf of the employee.|
A contractor usually deals with her/his own tax.
Relationship to the business
|An employee is usually an integral part of the employer's business|
A contractor's work is usually an accessory to the business.
Ability accept other work
|A full-time employee is usually restricted to work for the one employer during normal business hours|
A contractor can accept as many contracts as they wish.
Right to refuse work
|An employee does not have the right to continually refuse a reasonable task.|
A contractor usually agrees to the tasks beforehand. The contract governs the tasks that must be performed.