The federal government released a consultation paper in May 2011 on reporting taxable payments made to contractors in the building and construction industry. The changes outlined in the paper are due to take effect from July 1, 2012. They will have implications for the contractor management processes of businesses. We look at these changes in more detail below.
Proposed Changes
The proposed changes allow for greater transparency by requiring businesses to report (on an annual basis to the ATO) on ?relevant payments? made to contractors business in the building and construction industry. The business will be required to present each contractor?s ABN at the same time.
Note that the changes only apply to businesses to business transactions; that is, payments made by businesses to contractors in the building and construction industry. Private individuals who engage the services of independent contractors will not be required to report to the ATO.
The new reporting regime will be enacted through Schedule 1 to the Taxation Administration Act 1953 (Cth), under the section on Payment, ABN, and Identification verification system in Part 5-30. The reporting taxable payments requirement is one of the three measures under the Improving Tax Fairness and Compliance package in the 2011-12 Budget.
What are the Reportable Payments?
According to the Treasury?s consultation paper, the payments that are subject to reporting are payment for a supply of building and construction services. These payments are referred to as ?Division 405 payments?.
The payment can be in whole or in part for the supply of these services. This means that payments that are only for the supply of goods and materials or salary and wages for employees are not reportable under the new rule.
The term ?building and construction services? has an ordinary meaning and covers carpentry and joinery to excavation, earth-moving, roofing and roof construction, and more.
Who is the Supplier?
The Supplier is any contractor who is engaged in the building and construction industry with an ABN and receives a reportable payment (a Division 405 payment). Unlike the Purchaser, the Supplier has no responsibility under the new provision to make a report.
Who is the Purchaser?
The Purchaser is the party who is required to report to the ATO. They are any business (including sole traders or contractors) that is wholly or principally engaged in the building and construction industry. This excludes homeowners and private individuals.
When Will the Changes Take Effect?
The new reporting regime will begin on July 1, 2012. This means building and construction businesses, as part of their contractor compliance policy, should begin keeping records from that date, in order to lodge their annual Division 405 Report for the financial year ending June 30, 2012.
The ATO is expected to incorporate the new requirement into their software packages and existing educational programs.
Consultation Process
The ATO and the Treasury sought submissions from the community, businesses, and industry groups as to the proposal, with submissions closing on June 27, 2011.
Justification for the New Changes
The changes are expected to improve compliance and tax auditing. It?s been reported that the government will recoup more than $500 million in tax revenue through these measures.
The resulting onus on businesses won?t present a heavy burden. Businesses are required to report on relevant payments only once a year, and the information required will already be normally recorded by businesses.
Source: http://blog.tradesmonitor.com.au/?p=209
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