Up to 10 years in prison for deliberate ‘wage theft’.

Legislation currently being debated in Parliament will introduce a new criminal offence for intentional “wage theft”. If enacted, in addition to the criminal offence, a fine will apply.  

The fine is three times the underpayment and:

• For individuals - 5,000 penalty units (currently $1,565,000).
• For businesses - 25,000 penalty units (currently $7,825,000).

The reforms are not intended to capture unintentional mistakes and a compliance ‘safe harbour’ will be introduced by the Fair Work Ombudsman for small businesses.

In addition to addressing wage theft, the Bill also seeks to:

• Replace the definition of a ‘casual employee’ and create a pathway to permanent work.
• Change the test for ‘sham contracting’ from a test of ‘recklessness’ to ‘reasonableness.’
• Bolster the powers of the Fair Work Commission including the ability to set minimum standards for ‘employee-like’ workers including those in the gig economy.
• Introduce a new offence of “industrial manslaughter” in the Work Health and Safety Act 2011.

What happens when a trust appoints income to a private company beneficiary but does not actually make the payment?

The tax treatment of this unpaid amount was at the centre of a recent case before the Administrative Appeals Tribunal (AAT) that saw a taxpayer successfully challenge the ATO’s long held position (Bendel and Commissioner of Taxation [2023] AATA 3074). For many years, the ATO’s position has been that if a trust appoints income to a private company beneficiary but does not actually make the payment, this unpaid amount can be treated as a loan. Under Division 7A of the tax rules, these loans can be taxed as unfranked dividends unless they are managed using a complying loan agreement with annual principal and interest repayments.

This AAT decision challenges an important ATO position, with the tax outcomes being potentially significant for trust clients that currently owe (or may have owed in the past) unpaid trust entitlements to related private companies.

But this is not the end of this story. On 26 October 2023, the Tax Commissioner lodged a notice of appeal to the Federal Court. There is no guarantee that the Federal Court will reach the same conclusion as the AAT. We will need to wait and see.