ATTEMPTS by the Australian Taxation Office to force brothel owners to collect GST from prostitutes are destroying the legal industry and forcing sex workers into illegal operations, the sex industry claims. The Adult Business Association of NSW, representing 48 legal brothels, says there are now more than 550 illegal establishments in Sydney and that an ATO crackdown is scaring sex workers away from legal operations.

The ABA wants an industry taskforce set up to tackle the problem and has written to Taxation Inspector-General David Vos saying the proposed GST changes will mean the end of the legal brothel industry.

The association's submission claims the failure of local councils to shut down illegal brothels has severely cut the profits of legal houses.

It warns this is being compounded by the ATO's decision to concentrate on auditing legal establishments, which it says are already tax-compliant.

"If the ATO forces brothels to play tax collector for them, and to pay GST on service-providers' income it will have a devastating effect on the industry," ABA lobbyist and tax consultant Chris Seage says in the submission.

"The service-providers will merely migrate to the underground economy currently flourishing because of no ATO audit action."

In the two-tier system adopted by most legal brothels, known as Model 4, a client makes two separate payments: one to the establishment for room hire and a second to the prostitute for sex.

The system has been on the ATO's website since 2003 and had its support as recently as the beginning of this year, according to the submission.

It allows the brothel owner to pay GST on the room hire but not on the payments to prostitutes, who are not considered employees.

Mr Seage said most brothels adopted Model 4 because they were told to do so by the ATO.

The ATO had now done a backflip and advised brothel owners Model 4 was under review, presumably because it had "shot itself in the foot" and was not getting GST from sex workers.

He said most prostitutes were reluctant to identify themselves to the tax office, and a recent crackdown had prompted many to desert legal brothels, leaving them short of sex workers.

"They believe that if they have to start paying GST on the girls, that's the end of the legal brothel industry in NSW - full stop," he said.

Link to original article