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Contractor to lose hundreds over payroll tax changes

Date

Kirsten Lawson

Tough decisions: Howard Taylor said he was asked to agree last week to have his pay cut by 6.85 per cent.

Tough decisions: Howard Taylor said he was asked to agree last week to have his pay cut by 6.85 per cent. Photo: Jeffrey Chan

Canberra IT contractor Howard Taylor says he is set to lose $450 a month from his after-tax pay on October 1 as a result of payroll tax changes in the ACT budget.

It is a pay cut, Mr Taylor says, that leaves him gob-smacked.

Mr Taylor, a senior developer with the federal Education Department, is one of an estimated 1000 contractors in Canberra whose employers have been exempt from payroll tax to date. That exemption has been abolished, and the employers are passing the tax on to their contractors.

Mr Taylor said he was asked to agree  last week to have his pay cut by 6.85 per cent. He said he does not blame his employer, Compas IT, but said the ACT government should delay the changes by a year to give companies time to adjust.

"I am gob-smacked that the government can suddenly introduce this change and hurt thousands of workers who have done nothing wrong by expecting them to take such a massive hit to their take-home pay," he said. Compas took a margin of 5 per cent from his hourly rate, so couldn't absorb the whole tax, he said. 

"Because there is no way I can renegotiate the rate the department pays me, the only 'give' in the system is in my pay. I am pretty much over a barrel here. This is really disgraceful."

Mr Taylor said his work section had 27 people, eight of whom were contractors and the rest public servants. One of the contractors was not affected because he worked for a small company whose payroll was under the $1.85 million threshold for having to pay the tax. The rest were in a similar position to him. The result was contractors working side by side on the same rates from the federal government, but with a significantly different take-home pay.

Mr Taylor has worked for the Education Department for seven years and his take-home pay is now less than it was in 2010. Pay for the permanent staff he worked with, however, has increased 3 per cent to 4 per cent a year.

"I have no issue with paying my taxes," he said. "But I fail to see how the government can justify to me and others why I should suddenly pay $5500 into its coffers, whilst others don’t."

ACT Treasurer Andrew Barr delayed the implementation of the tax for three months – from July to October –  after an outcry from contractors and recruitment companies.

"It wont be a significant pay cut, but for some it may well mean an adjustment to the money they receive," he said. "Others will have a contract that will allow for their employer – because payroll tax is levied on employers not employees –  to meet this cost."

Mr Barr said he understood some firms would pass the tax on to workers. But he said the contractors had set up their affairs to effectively avoid the payroll tax, with a series of employer groups between them and the contract with the federal department. It wasn’t a level playing field because those people who had not structured their affairs in the same way had always faced the tax. The government was determined to close the loophole, he said.

The government expects to raise $10 million a year from taxing the 1000 contractors.

The contractors have a complicated employment arrangement; their contracts with federal departments are negotiated by one company, such as Compas IT, and their pay is handled by another company.   

The opposition spokesman for Treasury, Brendan Smyth, said the tax was causing   many people angst and confusion.

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