Tax Office’s ABN rules an obstruction to self-employment
GRACE COLLIERThe Australian12:00AM September 6, 2014

WAGE growth is slowing, unemployment is rising and Australians have bills to pay. People who cannot find, or do not want, a job need the option to try self-employment, yet retrograde actions by the Australian Taxation Office prevent just that.

Australian Business Numbers were introduced by the ATO in 2000. All businesses, including self-employed people, were required to have an ABN, secured after a short application process. Today, you must have an ABN to get a business name, an Australian domain name or open PO boxes and business bank accounts.

Without an ABN invoices should not be issued and if, for some reason, they are, the payer is obliged to withhold 49 per cent for the ATO. An ABN is the government-endorsed indicator that a person is not an employee and is instead legitimately self-employed, authorised to provide services to the market.

In the years following their introduction few people were denied ABNs. But under federal Labor, everything changed. It became much harder for people to get and keep ABNs. In 2010, the ATO said “labourers and other employees” could not be self-employed.

All of these people are automatically denied ABNs. For everyone else, the application process has been skewed against the self-employed.

The 2010 introduction of an online “decision tool” on the ATO website meant applicants must answer about five simple questions before the software pronounced them either an employee or self-employed.

Now, if the tool declares a person to be an employee, an ABN is denied. The tool makes important life-affecting decisions that lie outside the ATO’s specific legislative authority. Under employment law, it is the court — only after a dispute — that decides if a person is an employee or self-employed. The ATO tool replaces that process and simplifies a complex matter to five answers punched into a computer.

Every month anywhere between 17,000 and 31,000 people apply for ABNs. Until October 2012, the ATO was rejecting fewer than 200 ABN applications a month. In November 2012, that suddenly and without explanation jumped to about 2000 rejections a month, peaking in one month to more than 7000.

A recent Auditor-General’s report into the ABN system said there was no consistency in the ATO’s explanations for rejection of ABNs and the process seemed to be random. I’m told the ATO rejects applications because it takes the view “people cannot be enterprises”.

To make matters worse, the ATO is now arbitrarily withdrawing people’s existing ABNs based on the person’s tax return. Withdrawals are happening without warning, reasons being given or rights to appeal.

An Independent Contractors Australia submission to the Board of Taxation is full of examples of people who have had their ability to earn a living inexplicably ripped away from them.

I know of a freelance journalist who had his ABN withdrawn after having one for years. How is he supposed to get paid for his work? As a freelance columnist, I have long held an ABN. Out of interest, I completed the tool, twice. On both occasions I was deemed an employee and would not be allocated an ABN. Perhaps my existing ABN will be withdrawn once my tax return is lodged.

Imagine the public outcry if this column could no longer be read? There will be rivers of blood in the streets.

Seriously, though, there are unscrupulous employers out there who attempt to force self-employment on unwilling employees. Perhaps the moves by the ATO were to avoid these scenarios from occurring, but the baby has been thrown out with the bathwater. Something needs to change, and fast. Consider this statistic: in the two-year period around 2012 the number of self-employed people in Australia dropped by 130,000.

In a modern economy, self-­employment should not be obstructed. It provides flexible working conditions, good pay and career development. People can earn a living in a way that suits them depending on their stage of life.

For the economy, self-employment is an important bridging stage for people who want to make the transition from traditional employment to business ownership. Today’s self-employed person is tomorrow's wealth creator. Every year, the government spends millions on “entrepreneur grants”.

To my mind, these people should not be given taxpayer money but should be allowed to function legitimately — and to do that they need an ABN.