The letters follow warnings from the Tax Office that it would be using information from labour hire firms and auditing to improve contractor compliance through the 2012 financial year.
The ATO tells SmartCompany that "around 660 letters will be sent out this month to contractors who have identified themselves as running a personal services business who may have incorrectly self-assessed their income."
"The letter provides information to the contractor and their tax agent to assist in ensuring their tax treatment is correct."
"We use a number of methods to monitor the tax obligations of contractors including information received from labour hire firms. We may review or audit the tax affairs of these contractors where we see apparent anomalies."
The Tax Office has toughened the screws on companies and individuals over the past year or so, after taking a softer stance during the global financial crisis. It is also under pressure to boost tax revenue.
Independent Contractors Australia executive director Ken Phillips says the ATO probably went "too soft" through the GFC, and is now undertaking a big crackdown.
Phillips says while he has no problems with the ATO catching non-compliance, the ATO must ensure they operate transparently and within the rules.
He says he's not hearing of any members receiving a letter yet but says he's concerned about how the ATO judges potential breaches of tax laws and its communication with affected contractors.
"If the Tax Office is conducting an investigation, they should make sure they clearly explain to the taxpayer what the test result is and take them through the ruling so they can give the taxpayer a fair capacity to make their own assessment and then be in a position to put to the Tax Office their view of their own situation," Phillips says.
MGI principal Sue Prestney says people do "incorrectly classify their themselves as a personal services business, and be fairly unofficial about whether they meet the criteria."
She advises individuals to consult with their accountants or relevant professional to ensure they meet the criteria.
In its 2011-2012 compliance report, the ATO said it would "provide further information to contractors and tax practitioners to help them get the tax treatment right".
"We will use information received from labour hire firms to identify contractors, particularly in engineering and computer technology industries," the Tax Office said in June 2011.
"We may review or audit the tax affairs of these contractors where we see apparent anomalies."
Other groups to come under the microscope are wealthy Australians, small businesses suspected of under-reporting their cash incomes, and executives, directors and employers.
It will also be keeping an eye on work-related expenses, the cash economy, business activity statements, GST evasion, superannuation and sham contracting.
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