- The Australian Federal Government's tax assault on thousands of IT contractors may spark some positive outcomes for the contracting industry. It is strengthening the resolve of cross-industry groups representing self-employed contractors to band together for mutual protection.
The idea is finding favor across a broad range of industries, says Norman Lacey, executive director of the Information Technology Contract and Recruitment Association (ITCRA). An independent contractors association drawing support from contractors in many different sectors, is being considered, he says.
Although contractors form an increasingly important component of the economy, their political clout is fragmented because they have no single group representing them. A new umbrella organisation could be seen as a national union for contractors, Lacey says.
From ITCRA's point of view, it would embrace "all those who have an interest in ensuring contractors are not obliterated from the face of the earth".
The 70 IT recruitment companies in ITCRA jointly act for about 12,000 contractors and consultants who channel their income through an incorporated body.
Tax rules that came into effect July 1 last year declared anyone earning more than 80% of their income from one customer would be taxed as employees. The impact was diluted by this week's announcement that contractors can self-assess their position rather than filling out complex tax office forms.
But a fog of doubt hangs over the Alienation of Personal Income legislation.
"I don't believe self-assessment is a solution to the worry and uncertainty," says Philip Argy, national vice president of the Australian Computer Society and chairman of its economic, legal and social implications committee. "The contractors who are most concerned are those who aren't sure of their position and self-assessment doesn't solve that. The consequences of being wrong are severe and most people wouldn't be confident enough to bet their future on (self-assessment)."
One typical contractor with an annual income of $100,000 said he faced a doubling of his tax liability if he is treated as an employee.
Because large IT projects commonly run for several years, IT consultants are particularly exposed to the 80%-of-income rule. The legislation also treats recruitment agencies, not the end customer, as a contractor's employer. So contractors working for multiple companies through a single agency are also caught in the net, a fact which has sparked intensive lobbying by ITCRA.
Leaders IT&T managing director Claire Lingard estimates the legislation affects 5% of the incorporated contractors her recruitment company deals with. Most contractors are confused about the legislation which "needs more clarity", she says.
"At the end of the day, if the country wants projects completed, it needs contractors focused on outputs, not fiddling around with a complicated tax regime." She predicts many consultants will be looking at overseas postings "where the tax system is not geared to tax maximisation".
"The competition for their skills is there and if other countries not only pay more but allow contractors to keep more in their hands, that offsets the lifestyle advantages of Australia."