Page 185 - Week 01 - Wednesday, 17 February 1993
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Mr De Domenico is also proposing a $500,000 limit. I am advised that this criterion was also examined when the service contract legislation was being drafted. It was rejected as an arbitrary provision. Other grounds for exemption - for example, where the supply of goods is the primary purpose of the contract - are far more appropriate. Further, if such a provision were included in the legislation, it would open an opportunity for tax avoidance by using, for example, family trusts or companies to accept $500,000 payments for essentially highly paid consultancy and other personal services, just to avoid payroll tax. So it would enshrine a possible loophole in the tax system.
Exemption of work done by employees of subcontractors is another issue raised by Mr De Domenico. As a prima facie test of independence this is acceptable but, again, if it is enshrined in the legislation it can create loopholes for tax avoidance and tax evasion. For example, a private company the only members of which are the two directors - not an unusual example - could be providing labour services to another person. If those services are of the nature of services provided by employees - for example, if they are continuous - why should they be exempt from payroll tax? The arrangement is clearly a sham, and I believe that Mr De Domenico's amendment would require the commissioner to accept such a sham. I do not believe that that is a fair taxing regime.
Madam Speaker, as I said earlier, Mr De Domenico seeks to exempt all partnerships, without exception. Mr De Domenico seeks to exempt certain categories of labour contracts simply because the subcontractor is a partnership or because a sole trader arranges with another person to work with them on the job. The Opposition should recognise that the emphasis should not be on the structure of the arrangement but on the substance of the relationship between a principal and the persons performing the labour.
To summarise, Madam Speaker, the Government does not support Mr De Domenico's proposal, because we consider it to be both unnecessary and dangerous, and I consider that its prime purpose is to undermine the whole fabric of the service contract and employment agent provisions. I foreshadow that if Mr De Domenico wishes to debate his private members Bill, which is substantially the same as this amendment, we will take exactly the same position on it. I urge members to reject not just these amendments but also that private members Bill.
Madam Speaker, if the Opposition were in fact to succeed with this amendment, they would be creating avoidance loopholes with the potential to undermine completely those provisions which were designed to bring subcontractors and employment agents within the payroll tax net where their arrangements were merely a sham substitute for normal employment arrangements. Such a result, Madam Speaker, could reduce the Territory's payroll tax base by more than $2m. I ask members to bear in mind also that, if, as Mr De Domenico would have us believe, the coalition should win the coming Federal election, this will be $2m less that Dr Hewson would have to reimburse by way of compensation to the Territory if he proceeds, as he promises to do, with the abolition of payroll tax. I ask members to bear in mind that such a proposition would not do the Territory any favours at all and may limit our capacity for compensation in the future.
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