New laws passed by parliament late last year directly target taxpayers that don’t meet their obligations to report payments to contractors. By denying a range of tax deductions, these new laws aim to stop the rampant under-reporting of contractor income by stemming the flow of cash payments. And with the system now expanded to mandate reporting for a broader set of industries, it’s important to check your obligations so you don’t get caught out!
Tax deductions denied
From 1 July 2019, if taxpayers do not meet their PAYG withholding tax obligations, they will not be able to claim a tax deduction for payments:
- of salary, wages, commissions, bonuses or allowances to an employee;
- of directors’ fees;
- to a religious practitioner;
- under a labour hire arrangement; or
- made for services where the supplier does not provide their ABN.
The main exception is where a mistake is realised and voluntarily corrected. For example, if you made payments to a contractor but then later realised that they should have been paid as an employee, and no PAYG was withheld. In these circumstances, a deduction may still be available if you voluntarily correct the problem, but penalties may still apply for the failure to withhold the correct amount of tax.
Are you in the road freight, IT or security, investigation or surveillance business?
Since the building and construction industry was first targeted in 2012 with the introduction of the Taxable Payments Reporting system, the reporting system has expanded to include cleaning and courier services. Now, a broader set of industries have been targeted.
If you have an ABN, and are in road freight, IT or security, investigation or surveillance, then any payments you make to contractors will need to be reported to the Australian Tax Office (ATO).
Be careful here as the definition of these industries is very broad.
Investigation or surveillance includes locksmiths. The definition covers services that provide “protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like.”
IT or security services are the provision of “expertise in relation to computer hardware or software to meet the needs of a client.” This includes software installation, web design, computer facilities management, software simulation and testing. It does not include the sale of software or lease of hardware.
Road freight is typically goods transported in bulk using large vehicles. This includes services such as log haulage, road freight forwarding, taxi trucks, furniture removal, and road vehicle towing. The addition of road freight to the taxable payments reporting system completes the coverage of delivery and logistics services as businesses in courier services are already obliged to report payments to contractors to the ATO.
If your business is impacted by these changes, you need to document the ABN, name and address and gross amount paid to contractors from 1 July 2019. Your first report to the ATO, the Taxable Payments Annual Report (TPAR), is due by 28 August 2020. This might seem like a long way away, but it will come around quickly, and you need to ensure that your systems are in place to manage the reporting required easily and accurately.
Who needs to report?
The obligation to report contractor payments to the ATO is already quite broad. The addition of road freight, IT or security, or investigation or surveillance services, adds another layer.
|Service||Reporting of contractor payments|
|Building and construction services||From 1 July 2012|
|Cleaning services||From 1 July 2018|
|Courier services||From 1 July 2018|
|Road freight, IT or security, or investigation or surveillance services||From 1 July 2019|
For businesses providing mixed services, if 10% or more of your GST turnover is made up of affected services, then you will need to report the contractor payments to the ATO.
If you need a hand working out what information you need to report to the ATO, just call us on 9887 8751 or send us an email to schedule an appointment.