3rd Quarter 2014

When engaging a new worker in your business, you should check if they are an employee or contractor before entering into any agreement or contract. If you've previously engaged a worker without checking whether the arrangement is employment or contracting, you should review your earlier decision now to make sure you got it right.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and at the individual circumstances for each person you're engaging. The ATO has an Employee/Contractor decision tool on their website. The tool will provide a decision based on answers to some simple questions. You can also print the results to keep for your records. Your business will need to keep records to support your decision on whether your worker is an employee or contractor and the factors you relied on.

A worker isn't automatically a contractor just because they have an ABN or specialist skills or you only need them during busy periods. Employees work in your business and are part of your business. Contractors are running their own business.

Your tax, super and other government obligations will vary depending on whether your worker is an employee or contractor. In some industries it's common for businesses to incorrectly treat their employees as contractors for tax and super purposes. Just because everyone in an industry uses contractors doesn't mean they are right.

Some types of workers are always employees. If you engage any of the following types of workers you need to treat them as an employee:

• apprentices;
• trainees;
• company directors;
• labourers; and
• trades assistants.

You may believe that engaging a worker as a contractor will save you time and money. However, if the relationship is really employment, it may end up costing your business a lot more as you may face penalties for failing to comply with your tax and super obligations for your worker.

APPRENTICES AND TRAINEES ARE EMPLOYEES FOR TAX AND SUPER PURPOSES

If you are considering taking on an apprentice or trainee, you will need to add them to your PAYG withholding, super and fringe benefits tax (FBT) obligations.

An apprentice or trainee will always be an employee. They are not running their own business. While they are in training they are required to work under your direction, control and supervision to earn their qualification, certificate or diploma. They are usually covered under an award and receive specific pay and conditions. By the very nature of the arrangement, apprentices and trainees are employees.

While your apprentice or trainee may already have their own ABN they can't use that ABN as part of their apprenticeship or traineeship.

There are consequences when a trustee of a self-managed super fund (SMSF) becomes a 'disqualified person'. If you are a trustee and become a disqualified person, you are not allowed to remain a trustee.

A person can become a disqualified person for a number of reasons, most commonly when they are considered to be insolvent, under administration or an undischarged bankrupt.

A disqualified person commits an offence if they know they are disqualified and continue to be, or act as, a trustee of an SMSF. Penalties, including fines and imprisonment, can apply. There is also a risk the SMSF can be made non-complying if you do not take appropriate action.

If you become a disqualified person you need to:

• remove yourself as trustee and inform us immediately; and
• transfer your superannuation interest out of the SMSF.

If by doing so the fund no longer meets the definition of an SMSF, it may need to be restructured to meet the requirements of a regulated super fund or be wound up. For more information refer to the ATO website.

SMSF trustees (who are also normally the members) must from the 2012-2013 financial year and onwards, consider whether the SMSF should hold insurance cover for the members, following an amendment to the superannuation regulations in order to discharge their obligations under the SIS Act.

Insurance should be considered when preparing the initial investment strategy for newly established trustees. For existing SMSF’s, this should form part of the regular investment strategy review. There is no rule on how often trustees need to consider the insurance needs of members, but you need to document this at least annually.

Trustees should consider whether fund members need total and permanent disability (TPD), life and income protection insurance. From 1 July 2014, you will not be able to take out new policies in super that don't align with the conditions of release in superannuation law. This includes TPD policies that pay a benefit if the member is unable to work again in their own occupation and insurance that pays a benefit if the member suffers a critical illness specified in the policy.

The following are some reasons why a member may not require insurance cover:

• the member has cover in another super fund;
• the member has cover outside of the super fund;
• the member has no need for cover as their debts are low and expenses are fully funded;
• the member does not believe in cover or is unwilling to pay the cost of the premium; and
• the member has been declined cover due to occupation or pre-existing conditions.

If no changes to insurances in the SMSF are required, the trustees should document the reason(s) why the decisions were made annually in the fund’s investment strategy or in the minutes of trustee meetings if no changes are made to the investment strategy. This will provide evidence the new requirement has been addressed.

Clients intending to lodge a lump sum Family Tax Benefit, Child Care Benefit or Single Income Family Supplement (SIFS) claim for the 2012-2013 financial year, must do so by 30 June 2014 due to changes to the claim lodgement period administered by the Department of Human Services.

Also, clients who received or expect to receive Family Tax Benefit, Child Care Benefit and/or SIFS for the 2012-2013 financial year must lodge their individual income tax returns by 30 June 2014 to receive their benefits.

If you do not need to lodge an income tax return you must notify Centrelink by 30 June 2014 and you may also advise the ATO by lodging a Return not necessary.