Thinking About Becoming A Contractor? ABNs, Sham Contracting, Agreements And More…

Being a contractor offers flexibility, choice and more control over your own schedule. It also means that you have different responsibilities from other employees that you may have to fulfil.
For employers, knowing the difference between a contractor and an employee is a must. It can lead to costly penalties if the two get confused.

An independent contractor is someone who operates under an ABN and is not an employee of the company that they perform work for. They may also provide services to another person or business,

Sometimes an independent contractor may operate their own business and have many clients, in other cases the independent contractor may only do work for one company.

There are a number of factors that determine whether or not you may be classified as a contractor versus an employee. These can include:

  • How much control you have over the work you are conducting for the business – the more control you have, the more likely it is an independent contracting relationship.
  • If you are allowed to pick when you are working – employees have set hours in their agreement.
  • If you are running your own business and can have other clients while doing the work for this particular business.
  • If you are able to delegate or subcontract the work to others.
  • If you are the one responsible for your work and insurances – employees are covered by their employer, contractors are responsible for organising their own.
  • If you are expected to have your own equipment prepared for the work that you will be performing – employees will be provided with the equipment that they need.
  • If you bear financial risk for your errors.  You might have to redo the work for no pay if you get it wrong


In Australia, independent contractors often use the sole trader business structure when operating and conducting their business. Due to this, there is a legal requirement that you register an ABN for yourself or your business if operating as a contractor/sole trader.

Having an ABN is important. It identities you and your business to the government and helps with tax and other business-related activities.

Not everyone may be entitled to an ABN (especially if they are considered to be an employee for the work that they are performing),. As a sole trader though, you are as you are considered to be starting or carrying on an enterprise.

For those who wish to contract you for your services, an ABN means that your clients will not be required to deduct tax from you. If you invoice an organisation without being in possession of an ABN, they are required by law to deduct tax at the highest rate that they can, as well as declare the income you receive from them through to the ATO.

If you’re operating as an independent contractor or sole trader, losing a chunk of your income to tax before you even get paid isn’t something that you’re likely to want to happen. That’s why having an ABN is important for you, to ensure that that doesn’t happen.

If your business is looking into creating a working relationship with a contractor, you need to be careful that you do not fall into a sham contracting arrangement.

A sham contractor arrangement is when a business (or individual) tells a worker that they are an independent contractor. It can exist even if the worker is treated like an independent contractor in some ways such as having an ABN and providing invoices like what a genuine independent contractor might have to do.

It’s illegal and be done knowingly by an employer to avoid taking fiscal responsibility for paying legal entitlements to employees. It is illegal to:

  • tell an employee they are an independent contractor
  • say something false to convince an employee to do the same work for the employer but as an independent contractor
  • dismiss or threaten to dismiss an employee if they don’t become an independent contractor, or
  • dismiss an employee and hire them as an independent contractor to do the same work.

If you are concerned that you may be involved in a sham contracting arrangement or are an independent contractor looking for assistance in ensuring that you are remaining compliant with your current obligations when it comes to tax, super or business, Concord Tax Kirwan can assist. We are also equipped to help you with dealing with an ABN.

Capital Gains Tax Can Be Tricky – That’s Why We’re Here To Help

If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.

The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. A CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.

The Sale Of An Asset

If there is a contract of sale, the CGT event happens when you enter into the contract.

A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.

If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.

Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.

Loss Or Destruction Of An Asset

If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction.  In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost.

If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).

The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:

  • receipts of purchase, transfer or sale
  • if money was borrowed and details of interest
  • receipts for insurance, rates and land taxes
  • receipts for the cost of maintenance, repairs and modifications
  • any market valuations
  • brokerage on shares and cryptocurrency
  • digital wallet records and keys.

Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).

If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigmarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission. We often have our clients make an appointment with us to calculate any CGT tax.  Most people use that money when they sell an asset so it makes sense to find out how much the tax will be and put  aside sufficient for the time when they lodge their tax return. It is certainly worth the cost of a visit.

FOUR ways to complete your tax returns

This year we have developed FOUR ways you can complete your tax return to make it as convenient and (of course) as safe as possible for you:

1. In house appointments at 60 Thuringowa Drive, Kirwan as normal.

2. Appointments via the video conferencing Zoom platform in the comfort of your own home or workplace.

3. Telephone Appointments for those who are out and about or not quite so tech savvy.

4. Email appointments, for those who like to email in all their data or are on the go.

To make your tax return appointment call the office on 4773 4088, email; [email protected] or go to Book an appointment.

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