Businesses that operate in the building and construction industry from 1 July 2012 will be required to report all payments made to contractors (for building and construction services rendered) to the Australian Taxation Office (ATO) each year. The Government announced the introduction of this reporting measure in the 2011-2012 Federal Budget.
The introduction of this measure, albeit onerous on businesses, is aimed at assisting the ATO in identifying contractors that have outstanding income tax returns and ensuring that all income has been reported for those that have lodged their returns.
The ATO have advised the new reporting requirement will be imposed on businesses that are considered to be operating primarily in the building and construction industry. A business will be deemed primarily operating in the building and construction industry if any of the following conditions apply:
- In the current financial year, 50% or more of your business activity relates to building and construction services
- In the current financial year, 50% or more of your business income is derived from providing building and construction services
- In the financial year immediately before the current financial year, 50% or more of your business income was derived from providing building and construction services.
The following details will need to be reported to the ATO for each contractor that has provided building or construction services that a business pays during each financial year:
- Australian Business Number, if known;
- Gross amount (including GST) your business paid for the financial year; and
- Total GST included in the gross amount (label 4).
Although the reporting year end date for this new measure is 30 June 2013, all relevant businesses will need to maintain detailed records of payments to contractors, starting from 1 July 2012.
The ATO have specified that the lodgement date of the first Taxable Payment Annual Report for businesses will be 21 July 2013. We note that in the first year, businesses who lodged their Business Activity Statements on a quarterly basis will be allowed an extension to 28 July 2013.
Not all payments are to be reported to the ATO, including:
- Payments for building supplies and materials only are not required.
- Unpaid invoices at 30 June each year will not be reported in the financial year in which the invoice is received but in the year the invoice is paid.
- Payments to members within the same tax consolidated group.
- Payments where PAYG withholding is required (reported separately).
For further information, please visit the ATO website or contact your usual Hanrick Curran advisor.
This article was published in the Winter 2012 Horizon. For a pdf version of the newsletter please click here.