Did you know, a new tax law takes effect from 1 July 2019? It only lets you claim deductions for payments you make to workers (employees or contractors) where you have complied with the normal PAYG withholding and reporting obligations.
This includes payments to suppliers who haven’t provided their ABN unless you have deducted 47% PAYG withholding tax.
Are there any exceptions?
The main exception is if you realise there is a mistake and voluntarily correct it before the ATO notices.
For example, if you make payments to a contractor, but then later realise they should be paid as an employee – and therefore PAYG should have been withheld.
In these circumstances, a deduction could still be available if you voluntarily correct the problem. But penalties may still apply for the failure to withhold the correct amount of tax in the first place.
What do I do?
Please make sure you:
- have a TFN for all employees and deduct the right amount of PAYG Withholding tax;
- have an ABN for all suppliers/contractors (or deduct 47% PAYG Withholding tax);
- know the difference between contract employees and contractors so you know whether to deduct PAYG Withholding tax or not); and
- fix any accidents as soon as you realise and before the ATO notices!
Taxable Payments Annual Reports system expanded
Are you in any of these industries?
- road freight
The Taxable Payments Reporting system was introduced to stem the flow of cash payments to contractors and rampant under reporting of income.
Since the building and construction industry was first targeted in 2012, the reporting system has expanded. It now includes cleaning and courier services. And, a broader set of industries have now been targeted.
Therefore, if you have an ABN, and are in any of the above industries, then any payments you make to contractors will need to be reported to the Australian Tax Office (ATO).
Be careful – the definition of these industries is very broad
Did you know – locksmiths are classified as ‘investigation or surveillance.’
The definition covers all services that provide “protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like.”
IT 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
- road vehicle towing
The addition of road freight to the taxable payments reporting system completes the coverage of delivery and logistics services. Businesses in courier services are already obliged to report payments to contractors to the ATO.
Who needs to report?
The obligation to report contractor payments to the ATO is already quite broad. And, the addition of road freight, IT or security, and investigation or surveillance services, adds another layer.
For building and construction services – From 1 July 2012
For cleaning services – From 1 July 2018
For courier services – From 1 July 2018
For road freight, IT or security, or investigation or surveillance services – From 1 July 2019
Businesses providing mixed services, listen up! 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.
I’m impacted – what should I do?
If your business is impacted by these changes, here’s what you need to do.
- 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 collect the information required ready for lodgement.