Taxable Payments Reporting - Building and Construction Industry

The government has recently introduced a taxable payments reporting framework for businesses in the building and construction industry. The new arrangements will take place from 1 July 2012 with the aim to improve tax compliance by contractors within the building and construction industry. 

Businesses in this industry will be required to report total payments made to contractors for building and construction services provided each year.

Taxable Payments Annual Reports will need to be completed on an annual basis and provided to the ATO by 21 July each year. Although the first report is not due until 21 July 2013, steps should be taken now to ensure that businesses have systems in place to record payments to contractors for building and construction services each year.

Background

The information reported on the Taxable Payments Annual Reports will be used by the ATO for data matching purposes to detect contractors within the building and construction industry who:

•    Do not lodge tax returns; or
•    Include all their income in lodged tax return.

Who needs to report?

You will be required to complete the Taxable Payments Annual Reports if:

•    You are a business that operates primarily in the building and construction industry; and
•    You make payments to contractors for building and construction services; and
•    You have an ABN.

The ATO considers you to be a business primarily in the building and construction industry if any of the following applies:

•    More than half your business activity relates to business and construction in the current financial year; or
•    More than half your business income is earned by providing building and construction services in the current financial year; or
•    In the immediate prior year, more than half of your business income was derived from providing building and construction services.

Details you need to report:

The following information needs to be reported for each contractor payments are made to if you are required to complete the Taxable Payments Annual Reports:

•    ABN (if known);
•    Name;
•    Address;
•    Gross amount paid to the contractor during the financial year (inclusive of GST);
•    GST included in gross payments made.

Payments that need to be reported

If you are required to complete the Taxable Payments Annual Reports, then you will need to report payments your business makes to contractors for building and construction services.

Payments that are for both labour and materials need to be reported.  Where invoices are for both labour and materials, whether itemised or combined, you will need to report the whole of the amount unless the labour component is incidental.

The ATO considers building and construction services to include any of the activities listed below if they are performed on, or in relation to, any part of a building, structure, works surface or sub surface:

• Alteration
• Assembly
•  Construction
• Demolition
•  Design
• Destruction
•  Dismantling
• Erection
• Excavation
•  Finishing
• Improvement
•  Installation
• Maintenance
• Management
• Modification
• Organisation
• Removal
• Repair
•  Site preparation.

Contractors who also make payments to contactors for building and construction services will also be required to report if they are carrying on a business that meets the reporting requirements detailed above.

Payments that don't need to be reported

Some payments that don’t need to be reported on the Taxable Payments Annual Reports include:

•    Payments for materials only;
• Unpaid invoices at 30 June each year.  Only invoices paid in each Financial Year need to be reported;
•    Payments which are subject to Pay As You Go (PAYG) Withholding requirements (e.g. payments to employees, workers engaged under voluntary agreement, workers engaged under a labour hire or on-hire agreement or contractors who don’t quote an ABN).

If you are home owner making payments to contractors for building and construction services that are private or domestic in nature, then these payments are not reported.

Action now

Although the first Taxable Payments Annual Reports does not need to be lodged until July 2013 we recommend that a system be implemented now that effectively captures the information to be included on the reports.  The system should be in place by 1 July 2012.

The ATO are conducting a 45 minute webinars specifically for those in the building and construction industry. To register click here

You may also find the ATO’s Taxable Payments Reporting Worksheet a useful tool, click here to view the worksheet.

If you have any queries please don’t hesitate to contact us.

 

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PO Box 725, Five Dock, NSW, 2046
P: (02) 9370 0400 | F: (02) 9370 0444 | E: simeonico@simeoni.com.au
 

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