Tax Office and State Government Audits for Subcontractor Agreements
For a wide variety of reasons, it is becoming increasingly common for businesses to engage subcontractors rather than employing persons directly.
With a properly drafted subcontractor agreement and correct invoicing and conduct, certain obligated payments for employees are not required to be paid to the bone fide subcontractor.
Having a valid subcontractor agreement will be one of the first items that the Australian Taxation Office review when undertaking an audit into your business tax remittances. We recently had a client subject to such an ATO audit who had subcontractor agreements for each subcontractor engaged (prepared by Ascendia Lawyers). The ATO was satisfied with the agreements and our client had a potential PAYG tax and super levy reassessment of $250,000 not pursued by the ATO.
Your subcontractor agreement is a very important agreement to your business. But you need a professional advisor to prepare the document to deal with necessary issues such as:
- payments and termination
- confidentiality
- insurances
- responsibility for re-work
- standards of work
- provision of tools and equipment etc.
You can also use these agreements to clearly define which party is responsible for payments such as Workcover insurances, payment of any applicable industrial awards and agreements, adherence to anti-discrimination legislation and required workplace health and safety legislation.
It is also important that your subcontractors’ invoices are not wholly or predominantly for labour otherwise your subcontractor agreements will be undermined.
While it is prudent to ensure that you have the relevant subcontractor agreement in place, you need to continue that even after such agreement is signed; you do not advertise or give the impression that the subcontractor is “associated” with your business. An example may be giving them a business card with your logo or driving around in a car with your business logo. Even with a subcontractor agreement in place, if all actions of the parties make it appear as if it is an employment relationship, you will be held to be an employer and required to provide all the usual insurances, payments and other obligations required of an employer.
For the initial upfront cost of having Ascendia Lawyers prepare you with a compliant subcontractor agreement and arrangements advice your savings can be substantial, in terms of:
- less disputes with contractors
- lowers liabilities in payments
- lower taxation costs and
- smaller amounts of statutory required payments.
In order to obtain further assistance in this area or to have your subcontractor agreements prepared or reviewed, please contact Natalie at Ascendia Lawyers through natalie.grima@ascendia.com.au or on 07 5444 9500.
For information about the consequences of not utilising correct agreements (e.g. PAYG tax, payroll tax for Workcover, super by subcontractor agreements), please contact Angela, David, Chris or Andre.