Independent contractors, recruiters, and contract services and management companies (CMSC) are feeling the heat under an Australian government crackdown on tax and immigration scams in the IT industry.
Computerworld understands that five CSMCs have been audited by Department of Immigration, Multicultural and Indigenous Affairs (DIMIA) officers.
The activities of several IT recruitment companies dealing with sponsorships for overseas candidates for jobs have also come under the spotlight, with some fringe players under investigation for the practice of “parking”, according to an IT recruiter who spoke to Computerworld under condition of anonymity.
“They may not be calling it a crackdown yet, but it’s the most co-ordinated, targeted and focused effort the industry has ever seen,” the source said.
“There were people being approved as IT specialists by some of these cowboys who had no IT skills whatsoever. They just put them anywhere, the building game mostly.”
Parking is where a company vouches for an overseas candidate when it knows there is little chance of the person finding a placement in the sector, thus using the candidate’s status for substantial tax advantages – of which the company takes a cut.
Some CMSCs are known to heavily target the backpacker sector with IT recruitment schemes, usually offering a range of employment “arrangements” and tax rates as low as 10 percent to tourists.
DIMIA confirmed that it has escalated its activities, preferring to use the term “targeted monitoring” to describe the personal visits from its officers who “go through all of their documents.”
Meanwhile, the Australian Taxation Office (ATO) has shone the spotlight on IT consultants over income splitting and retention of earnings and the living away from home allowance (LAFHA) following changes to legislation and the introduction of a results test for professional services contractors in 2002.
Several IT contractors are understood to have been selected for Federal Court test cases by the ATO in an attempt to set a precedent on the practices of inappropriate income splitting and retention of earnings by professional services contractors.
The Information Technology Contracting and Recruitment Association (ITCRA), whose members recruit and provide advice to IT contractors on how to manage accounting and taxation liability, is understood to watching the test cases.
One ITCRA member said that while such test cases may be necessary for precedent, problems could be avoided if the ATO would release clear tax guidelines for contractors.