Tax Reporting Changes for the Building Industry
Article from: Terry Hayes on SmartCompany
In the 2011 Federal Budget, the Government made public it would implement a new reporting regime to require businesses in the building and construction industry to report, on an annual basis, payments they make to contractors in that industry. Regulations have been drafted and released to implement this.
The new system will begin on 1 July 2012, and the first annual reports will be required for the year ending 30 June 2013. It should be noted that the regime will not generally apply to domestic building projects, and will cover only business-to-business transactions. However, where a domestic building project is undertaken by builders using subcontractors, then they will need to report those payments.
The aim of the regime
The aim of the regime is to improve compliance with taxation obligations by contractors in the building and construction industry by providing the ATO with adequate information to allow data matching for reviews and audits.
Examples of services that will be covered include
Architectural work (including drafting and design); installation of hard-wired alarm systems (security, fire, smoke, etc); asphalt and bitumen work; gas plumbing; demolition; electrical work; land clearing; installation of hot water systems; assembly, installation or erection of pre-fabricated houses; bricklaying; installation of septic tanks; building of room components (eg kitchens, bathroom components, laundry components, cupboards, etc).
What the ATO says
- The new regime will operate through the existing Payment, ABN and identification verification system legislation which has been in place since 1 July 2000.
- The reporting requirement would only be the information that businesses should already be keeping in their business records and for which they would be entitled to a tax deduction.
- For minimising the compliance cost for businesses, the ATO and Treasury are consulting with industry.
Moreover, the ATO is working with software developers to integrate the new reporting arrangements into accounting packages to further assist businesses that need to provide the new annual report.
Services provided that are incidental to the main building service will be outside of the new system. For instance, a paint store provides paint to painters as well as an in-house painting service. For a small additional service fee, the store will tint the paint to the colour the painter instructs. As the provision of the tinting service is merely incidental to the supply of the paint, under the new rules, the painter would not be required to report the payment it makes to the paint store.
With regard to the Commissioner's discretion about the timing of the payment reports, the ATO stated that it is trying to minimise costs for business, hence annual reporting is the preferred alternative to coincide with the income tax return lodgement cycle. As an alternative, quarterly reports will also be accepted after the first year of operation of the new system.
Concerns may arise on the possible impacts of the new reporting for businesses with a large number of contractors, who may be brought into the tax system as a result. Therefore the ATO is intending to target both reporters and reportees as part of educating the industry about the changes.
Although it is the intention that only the information businesses already have will need to be reported, the new regime still represents another compliance cost on businesses.
The expectation by the ATO and the Government is that the combination of reporting, awareness, ultimately, will result in increased compliance in the industry.
As to the scope of potential ATO audits that might result from the regime, it is understood the ATO proposes to generally take a forward looking approach, but depending on the circumstances, it considers it is not precluded from reviewing prior years as part of its compliance activity.
The ATO said the reported data may also be shared with State and Territory Revenue Offices to verify compliance with obligations such as payroll tax and workers compensation.
The period has now closed for comment on the draft regulations to implement the reporting regime and final regulations are now being developed. SMEs that may be affected by the new system should be aware of its existence, and that it will start on 1 July 2012, although the first annual report will not be required until after 30 June 2013.