Businesses in the building and construction industry, take note – the deadline is July 21, 2014 to report the total payments you made to each contractor you enlisted the services of in 2013-14. You will need to report these payments to the Tax Office on the Taxable payments annual report.

The taxable payments reporting system was initially introduced to address longstanding compliance issues by contractors in the building and construction industry. Tax compliance issues that were identified included non-lodgement of tax returns, income being omitted from tax returns that were lodged, non-compliance with goods and services tax (GST) obligations, failure to quote an Australian business number (ABN), and use of an invalid ABN.

The pointers below will help you adequately prepare for the looming deadline.

Work out if you need to report

You need to report if all the following apply:

• you are a business that is primarily in the building and construction industry
• you make payments to contractors for building and construction services, and
• you have an Australian business number (ABN).

You are considered to be a business that is primarily in the construction industry if any of the following apply:

• in the last financial year, 50% or more of your business income was derived from providing “building and construction services”
• in the last financial year, 50% or more of your business activity related to “building and construction services”, or
• in the financial year immediately before the last financial year, 50% or more of your business income was derived from providing “building and construction services”.

Note: contractors who pay other contractors for building and construction services may also be required to report if they are carrying on a business that is primarily in the building and construction industry. Remember – a contractor can be an individual, partnership, company or trust.

What to report

1)   Details you need to report

For each contractor, you need to report the following details each financial year:

• ABN, if known
• name
• address
• gross amount you paid for the financial year – this is the total amount paid, including GST
• total GST included in the gross amount you paid.

The details you need to report will generally be contained in the invoices you receive from your contractors. It is important to check the way you keep your contractor payment information to ensure you have the details you need to complete the Taxable payments annual report.

2)  Payments you need to report

You need to report payments you make to contractors for their building and construction services. If invoices you received included both labour and materials, whether itemised or combined, you report the whole amount of the payment unless the labour component is only incidental.

For instance, if a concrete truck if used to deliver concrete, and the driver merely directs the pouring of the concrete into the trenches, the driver’s labour component is incidental, or minor, to the supply of the concrete. You are paying for concrete and you do not need to report the amount paid.

If, for some reason, the driver pours the concrete, levels and does the formwork, then this is more than incidental. You are paying for the concrete as well as the building and construction service, and the total amount paid is reported.

“Building and construction services” 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 of building and construction services
• modification
• organisation of building and construction services
• removal
• repair, and
• site preparation.

3)  Payments you do not report

You do not need to report:

• payments for building supplies/materials only
• unpaid invoices as of June 30 each year – for example, if you receive an invoice in June 2014, but you do not pay that invoice until sometime in July 2014, you report that payment in the 2014-15 Taxable payments annual report
• pay-as-you-go (PAYG) withholding payments that are required to be reported in a PAYG withholding annual report – for example, payments to employees, workers engaged under a voluntary agreement to withhold, workers engaged under a labour-hire or on-hire arrangement, and contractors who do not quote an ABN. Note however that if amounts are withheld because a contractor did not quote an ABN, you can report the details in the Taxable payments annual report instead of the PAYG withholding where ABN not quoted annual report. If an ABN is not provided, the payer must withhold under the existing PAYG withholding arrangements
• if you are a home owner making payments to contractors for building and construction services – for example, if you are building or renovating your own home
• payments you make to another member of a consolidated group or multiple entry consolidated group that you are a member of for income tax purposes. This is because members of a consolidated group or multiple entry group are effectively taxed as a single entity.

Frequently asked questions

1)       Why are businesses required to report annually rather than quarterly?

The Tax Office varied the reporting requirements from quarterly to annual reporting to minimise compliance costs for businesses.

2)       Why are businesses required to report on a cash basis?

Many businesses in the building and construction industry are micro businesses, and a significant proportion of these businesses account on a cash basis. The Tax Office varied the reporting requirements to only require businesses to report the payments they make to contractors in the financial year in which the payments are actually made.

3)       Do businesses need to report payments they make to suppliers?

Yes, because suppliers who provide building and construction services are also contractors for the purpose of the taxable payments report.

4)       Do I report payments to contractors who repair and service my tools and equipment?

No. Maintenance of equipment and tools is not a construction service.

5)       I only purchase properties for rental purposes, and engage a property manager to manage them. Do I need to report the payments I make to the property manager?

No, you are not required to report as you are not primarily in the building and construction industry.

6)       I’m a landowner and I engage a project manager to manage the development of a building on my land. Do I need to report the payments I make to the project manager?

No, your core business is to purchase and sell property. You are not carrying on a business primarily in the building and construction industry and as a result, you are not required to report payments made to the project manager.

7)       If the project manager engages contractors to do excavation and foundation works on my land, who reports the payment made to these contractors?

The project manager does, because project management is a building and construction service.

8)       If I engage a contractor, and reimburse expenses they incurred in the course of providing building and construction services, do I need to include the reimbursed amounts in my annual report?

Yes. If you are a business primarily in the building and construction industry, the reimbursed amount is required to be included in your annual report.

9)       Sometimes I pay one of my contractors for invoices for both materials and labour. Other times, I pay for materials only. Do I report all of the payments I make to this contractor?

You are not required to report payments made for materials only. However, if you are unable to easily separate payments made for materials only without significant administrative effort, you can report all the payments you make to this contractor.

10)    I’m a labour-hire firm. Do I need to report the payments I make to my workers who are hired under a labour-hire arrangement to provide building and construction services?

No. You are not required to report payments if you are required to withhold amounts under the PAYG withholding provisions for labour-hire or on-hire arrangements.

11)    Am I required to report payments I make to contractors who are foreign residents?

Yes, unless they are subject to PAYG withholding for payments to foreign residents.

12)    Am I required to lodge a nil annual report if I did not make payments to any contractors for building and construction services?

No. If you are not required to lodge the annual report this year, enlist this office to email NilReportTPAR@ato.gov.au with your ABN and business name, and whether you will be required to lodge an annual report next year. This email address is only for use in providing information before the due date for lodgement.

13)    Should I tell my contractors about this reporting requirement?

You can choose to, but you are not required to.

14)    Do I have to provide my contractors with the details of the amounts I report in relation to payments made to them?

No, but you can choose to using the payee information statement.

Consult this office for assistance on how to lodge your report before July 21 this year. Penalties may apply for not lodging the annual report by the due date.