It is not just SMEs getting confused by the multitude of thresholds and definitions of what constitutes a “small business” and a “contractor”, with the Tax Office admitting it is “whacked all the time” by the situation.
During a regulator’s panel at last week’s National Small Business Summit, ATO commissioner Chris Jordan admitted that the lack of consensus on what a small business is, and likewise what a contractor is, is just as troubling for his agency as it is for affected business owners.
“To use the technical term, we get whacked all the time on these issues,” Mr Jordan said candidly.
“It would be nice to have a uniform one, but not just for tax,” he said.
The five regulators, including the Fair Work Ombudsman, admitted that even amongst themselves there are different turnover thresholds they work to in determining whether a business is classed as small.
“The contractor issue [is essentially] how long is a piece of string? There are provisions in there – the old employee based on decades or centuries old notions of master/servant and there’s personal services income. So there’s two grey areas there we would love to have clarified.”
Mr Jordan said it is not as simple as having an ABN equates to being a contractor, with a separate rule stating that “if you have 80 per cent or more of your income from one source, notwithstanding if you’re a contractor, you’ve got to return it as your income [not your business’ income].”
On top of that, there is another grey area about whether income is derived from delivering a specific result or for providing an overall service.
“So we’ve got two grey areas to deal with and we get whacked all the time,” said Mr Jordan.
ASIC commissioner John Price added that there is “a great virtue in simplicity”, but that engaging relevant stakeholders to pinpoint one uniform definition would be an entire conference on its own, which may still not deliver a definitive outcome.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.