Work test changes a surprising turnaround, says lawyer
The changes to the work test rule were a surprisingly quick amendment from the ATO Commissioner, according to a leading tax lawyer.
Daniel Butler, Director of DBA Lawyers, said the draft changes are a welcome relief and favours the taxpayer.
He said the modification (by way of a legislative instrument relying on the Commissioner’s Redemial Power) will modify the operation of s 290–165(1A) of the Income Tax Assessment Act 1997 (Cth) (ITAA) so that persons aged 67 to 75 who are an employee under s 15A(2) to 15A(10) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) are capable of meeting the ‘work test’ if they meet relevant criteria.
“The modification will apply retroactively from 1 July 2022 once the legislative instrument has been introduced into Parliament and it has not been disallowed within 15 sitting days of being introduced,” he said.
“Once this 15-day period has transpired the law will be modified and the work test for s 290–165 purposes will be linked to the same provision as existed when the work test previously in section 15A of the SIS Act.
“Thus, certain contractors including under s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (where a payment is to a person who works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract).”
Mr Butler said the first time he was made aware of the original changes to the work test which put restrictions on those who could claim a tax deduction for their employment, was in an article by Colonial First State head of technical services Craig Day on the SMSF Adviser on March 24.
“It would be interesting to know when the ATO picked up the unintended consequences,” Mr Butler said.
“These sorts of changes from the Commissioner usually take a lot longer to be implemented. More often the Commissioner will say an unintended consequence doesn’t fit the general power of remediation and any changes to legislation need to be done through parliament. Just look at the non-arm’s length expenditure, i.e., NALE, issue, where he said the legislation needed to be amended through parliament.”
“The unintended consequences of the previous work test rules were very subtle and a lot of people wouldn’t have picked them up.”
Mr Butler said the previous changes to the work test meant a lot of people who work as contractors, from food delivery drivers to contractors and consultants, were caught in the changes.
“When the work test was transferred from the SIS Act to s 290–165 of the ITAA, an omission or oversight was made in the drafting.”
“The definition of employee was in s 15A of the SIS Act was transplanted to section 291–165 (1A) of the ITAA.
“On the legislative drafting they put in the word ‘employee’ which resulted in the common law definition that did not pick up the extended meaning of employee in subsections (2)–(10). Thankfully, this has been picked up and the law is now being fixed by reinstating the status quo as it was in the SIS Act, under section 15A.
“The way it is being done is the by ATO using its power under the Tax Administration Act 1953 (Cth), which is very rarely used, and usually only to fulfill the intent of the law.”
