Contractors providing services to the agriculture, horticulture and viticulture industries

Submission

(Matter raised by officials)

Changes are proposed to the schedular payments rules (formerly withholding payments). The current wording and scope of “horticultural contract work” in schedule 4, Part C of the Income Tax Act 2007, which deals with tax evasion by contractors who provide services to the agriculture, horticulture and viticulture industries, is unclear and should be amended.

Comment

Officials propose that the term “horticultural contract work” be changed to “cultivation contract work” and include – payments by growers in the agriculture, horticulture and viticulture industries to contractors that are substantially for the supply of labour, and payments by vegetable growers that are substantially for the supply of labour. Officials also propose that this definition specifically exclude payments to pack houses and management entities.

Currently, the term “horticultural contract work” could catch contractors with a high capital component, or entities such as post-harvest facilities. This was not the intent of the rules as these entities are generally compliant and do not pose a threat to the revenue. In contrast, vegetable growers are not currently included within the definition and there is evidence of non-compliance within this sector. The new “cultivation contract work” definition that is proposed will ensure that those intended to be caught by the schedular payments rules are included, while those who are not, are excluded. The changes are supported by the industries concerned and will give them certainty while aligning current administrative practices with the law.

Officials propose that these changes apply from 1 April 2010.

Recommendation

That the submission be accepted.