Travelling IT contractors warned over ATO scrutiny
A tax expert has issued a warning to “on call” home-based IT professionals, after the Australian Taxation Office confirmed it will place greater scrutiny on claims made by IT workers.
This year, IT managers join plumbers and army sergeants in the ATO’s crackdown on excessive claims, singled out for having “a pattern of relatively high levels of work-related claims”.
Frank Brass, regional director of H&R Block, says strict rules prevent or limit certain deductions, such as travel costs.
“If you work from home and you get a call to service a client, and you have to go in to see the client, you can claim that. But you’ve really got to be on call to claim travel,” Brass says.
“If you travel from home to your own office, that’s a private expense. But if you’re on call and you get a call at home, then you can claim it.”
Ken Phillips, executive director of Independent Contractors Australia, told The Australian Financial Review he has seen the ATO unreasonably reject IT contractor travel claims.
According to Phillips, this includes disallowing the costs of travelling to see a client. He has labelled the action as “completely outrageous”.
If someone was genuinely travelling to a client, that should qualify, Phillips said. But he acknowledged the ATO “perfectly and legitimately should be scrutinising expense claims”.
In the 2010 tax year, about 55,000 people identified as IT consultants, computer network professionals or security specialists, earning from $74,000 to $94,000 on average
Those who consider themselves contractors are also at risk.
Personal services income (PSI) rules, aimed at stopping tax dodgers from funneling payments through an entity despite earning it from their own efforts, could apply to restrict their deductions to those of an employee.
“I’ve had enough cases shown to me that I’m not convinced that the Tax Office is [correctly] applying the PSI rules,” Phillips said.
That includes a focus on just one of a number of PSI tests. According to Phillips, the ATO should better educate people on the complex rules.
“There are a lot of accountants around and lawyers that don’t properly understand the PSI rules. People are sometimes getting advice that I think is not good,” Phillips told StartupSmart.
“The PSI rules are not as clear as I’d like them to be… It does take a bit of work to make sure you’ve read and understand them.”
“My view is that even though they’re not as clear as I’d like them to be, if you’re a genuine contractor you should be able to pass the PSI rules.”
According to Brass, there are three key tests used to determine PSI:
- Results test – whether you get paid on completion of a job or at an hourly rate.
- Rectification of a problem – whether you have to pay to fix a problem you make, or whether the person you’re working for pays to fix it.
- Ask for the tax commissioner’s discretion.
“If they don’t pass that test, PSI rules do apply so any claims they make can be limited to what an employer can claim,” Brass says.