ATO Housekeeping – Taxable Payments Annual Reports Explained for Building Professionals and Contractors
Building professionals have many obligations, on and off the work site.
If you are running a business ‘primarily in the building or construction industry’, have an Australian Business Number (ABN) and make payments to contractors for ‘building and construction services’, you must lodge a Taxable Payments Annual Report (TPAR) with the Australian Taxation Office (ATO) by 28 August each year.
Building professionals, contractors and sub-contractors should understand the TPAR statutory reporting requirements and their implications.
What is a TPAR?
A TPAR provides information to the ATO about payments made to contractors and subcontractors, whether they operate as a sole trader, partnership, company or trust.
The business must report the total amount paid to a supplier over the course of a year.
The information is used by the ATO in data-matching processes to assist in identifying contractors who do not comply with their tax obligations. Traditionally, non-compliance issues within the building and construction industry have included a contractor’s failure to declare income, to lodge tax returns or activity statements, or to register for GST (if required to do so).
The TPAR system is also used to identify circumstances where a contractor fails to quote an ABN or quotes an invalid ABN, and to verify whether a contractor has exceeded the threshold with respect to personal services income legislation.
What does ‘primarily in the building and construction industry’ mean?
A business is considered to be primarily in the building and construction industry if:
- in the current financial year, or the financial year immediately preceding the current financial year, it derived 50% or more of its income by providing building and construction services;
- in the current financial year, 50% or more of its activity relates to building and construction services.
The definition may capture several business types including builders, contractors and related service providers and property developers.
What are ‘building and construction services’?
A broad range of activities ‘performed on, or in relation to, any part of a building, structure, works, surface or sub-surface’ fall within the definition of ‘building and construction services’. This includes site preparation, design, construction, installation, maintenance, improvement and demolition works with respect to a range of projects such as housing, commercial and industrial buildings, footpaths, sports fields and tunnels.
Activities specified by the ATO as building and construction services include, but are not limited to, painting, decorating, bricklaying, electrical work, landscaping, demolition work, project management, excavation and surveying. A more exhaustive list of activities can be found on the ATO website www.ato.gov.au/tpar.
Payments for goods only do not need to be reported. However, payments made to suppliers who also provide ‘building and construction services’ incidental to the supply must be reported. For example, a payment made to a plant and equipment provider for the dry hire of an excavator will not need to be reported, however a payment made in
circumstances where the arrangement includes an operator for the excavator (wet hire) must be reported.
Contractors who subsequently sub-contract work will also need to comply with TPAR requirements.
Payments made to employees do not fall within the TPAR system but are subject to other employee-related reporting and compliance requirements.
Owner builders who pay contractors for building and construction services with respect to work carried out on their own home are not required to report.
Meeting your TPAR obligations
To meet the TPAR obligations, a business should not need to obtain any further information than that usually required for good administration. This means having in place sound processes for collecting contractor information and ensuring that proper tax invoices are received for all work carried out by a contractor before payment is made.
A tax invoice should contain the contractor’s name and address, ABN details and the gross amount to be paid including Goods and Services Tax (GST).
Payments are reported in the year the payment is actually made (not invoiced) and the total (combined) amount paid for materials and labour should be shown. The TPAR may be lodged in writing or online.
A business is not required to provide a contractor with details of the TPAR however may issue a Payee Information Statement detailing the total amount reported to the ATO, for the contractor’s records.
Under existing PAYG withholding arrangements, a business must withhold an amount (currently 49%) from the total payment to a contractor who does not provide an ABN.
Good record keeping is essential for all builders, not just to comply with statutory obligations but as a tool for monitoring, identifying areas of concern, and managing the cashflow and growth of a business.
The TPAR system assists the ATO in identifying contractors who do not meet their taxation obligations. Data-matching enables the ATO to cross-check the details provided in the TPAR with information declared by contractors or subcontractors in their tax returns and business activity statements.
Businesses and contractors should be aware of these processes and ensure that systems are in place and professionals consulted where necessary, to ensure compliance.
If you are unsure of your reporting requirements under the TPAR system or if you or
someone you know wants more information or needs help or advice, please contact our Building Lawyers
on 03 8787 8900 or email firstname.lastname@example.org.