The ATO is under pressure to recover lost ground after relaxing its position during the global financial crisis. One of the areas it intends to improve revenue is by targeting contractors.

The ATO has warned that it plans to use information from labour hire firms and increased auditing in attempt to improve compliance for contactors through the 2012-13 financial year.

During January, the ATO will be contacting those contractors that it believes may have wrongly assessed themselves as conducting a personal services business.

Personal Services Income (PSI) laws apply to prevent individuals from reducing their tax liability by alienating or assigning PSI to an associated entity or individual or by claiming inappropriate ‘business’ deductions.

It is clear that the ATO is lifting its game with contractor compliance. Last year’s compliance report stated that the ATO would ‘provide further information to contractors and tax practitioners to help them get the tax treatment right’. This year it has said that it will ‘use information received from labour hire firms to identify contractors, particularly in engineering and computer technology industries’.

Other groups to come under scrutiny will include wealthy Australians, small businesses suspected of under-reporting their cash incomes, executives, directors and employers. The ATO has also warned that it will be closely monitoring work- related expenses, the cash economy, business activity statements, GST evasion, superannuation and sham contracting.