In December 2011 the Federal Government announced a consultation regarding amendments to the Taxation Administration Regulations 1976 (Cth) (Regulations) to require businesses in the building and construction industry to report payments made to building and construction contractors to the Australian Taxation Office (ATO). This amendment to the current reporting regime is the result of a budget initiative which highlighted significant taxation compliance issues within the building and construction industry. The amendments which are proposed to come into effect on 1 July 2012, will introduce a number of changes to the reporting requirements of businesses in the building and construction industry.
What changes are being introduced?
A “purchaser” must report details to the ATO of “suppliers” who they have paid for a “supply”. The obligation to report to the ATO only arises where the following conditions are satisfied:
- the purchaser is a business that is primarily in the building and construction industry;
- both the supplier and the purchaser have an ABN; and
- the supplier supplies building and construction services, wholly or in part, to the purchaser.
Who is a purchaser?
The “purchaser” is the business paying for the supply of goods and services. The amendments seek to include “a business primarily in the building and construction industry” as a “purchaser”.
A business will be primarily in the building and construction industry where:
- more than 50% of its income during the current financial year is derived from the provision of building and construction services; or
- where more than 50% of its business income resulted from building and construction services in at least one of the two immediately prior financial years.
When is there a supply?
“Supply” has its ordinary meaning and includes the supply of goods and services. Under the proposed amendments, a “supply” will include a supply of building and construction services, in whole or in part.
Therefore, payments to a supplier for goods or materials solely will not be reportable unless services are included in the supply.
Supplies of labour where Pay As You Go (PAYG) withholding applies are expressly excluded from the definition of “supply” under the proposed amendments.
What are building and construction services?
The proposed amendments set out a prescriptive list of activities which are included in the definition of “building construction services”. In summary, the services include activities performed on, or in relation to, any part of a building, structure, works, surface or subsurface such as:
- Alteration
- Assembly
- Construction
- Demolition
- Design
- Destruction
- Dismantling
- Erection
- Excavation
- Finishing
- Improvement
- Installation
- Maintenance
- Modification
- Removal Services
- Repair
- Site preparation
It also includes the management of, or organisation of, building and construction services.
Reporting requirements
A business will be required to submit a report to the ATO in the approved form. The prescribed form requires that the report include the following details:
- The contractor’s name
- The contractor’s ABN
- The contractor’s address (where known)
- The total amount paid or credited to the contractor during the income year
- Whether GST has been charged
- Any other information the Commissioner requires
It is proposed that the report will be required to be lodged within 21 days after the end of each quarter. However, the Commissioner may exercise his discretion to change this to annually.
What does this mean for you?
From July 2012, purchasers of building and construction services will have additional reporting obligations to the ATO. This means a change in your systems to record the correct data.
If you are unsure about what is required and how to change your systems to meet the reporting requirements, we can help you. Contact us on 5536 3755.
