Businesses that have made payments to contractors for certain services in the 2021-22 income year are required to lodge a Taxable Payments Annual Report (TPAR) by 28 August 2022. This includes businesses that made payments to contractors or subcontractors for building and construction services, cleaning services, courier services, road freight services, IT services, and security, investigation or surveillance services.
Contactors or subcontractors in the context of TPAR also encompasses consultants and independent contractors, who can operate in a variety of structures such as sole traders (individuals), companies, partnerships or trusts. Where the contractor has issued a business an invoice that includes both labour and materials, the total amount will need to be included in the report.
However, certain payments (such as the following) will not need to be reported in the TPAR:
- payments for materials only;
- incidental labour (ie labour was incidental to the supply of materials);
- unpaid invoices after 30 June each year;
- workers engaged under labour hire or on-fire arrangements;
- PAYG withholding payments;
- payments to foreign residents for work performed in Australia which are subject to PAYG foreign resident withholding (if the payments are not subject to PAYG withholding, they will need to be reported in the TPAR);
- foreign residents for work performed overseas;
- contractors who do not quote an ABN – if an ABN is not provided, businesses may be required to withhold an amount from payments. The withheld amount will then need to be reported either on the TPAR or the PAYG payment summary – withholding where ABN not quoted form, not both.
- payments in consolidated groups; and
- payments for private and domestic projects – if you are a homeowner building or renovating your main residence, or a business making payments to contractors for services for private purposes (eg the owner of a cleaning business asking a contractor to clean their main residence).
According to the ATO, around $11bn a year goes missing in taxes and the TPAR system is just one of the tools used to identify non-compliance and keep things fair for all businesses. In the previous financial year, around $350bn in payments made to 950,000 contractors was reported through the TPAR. This year, the ATO expects more than 270,000 businesses to complete the report.
“We know most small businesses do the right thing, however there are some contractors out there who deliberately don’t report or under-report their income, making it unfair for honest businesses.” – ATO Assistant Commissioner Peter Holt
TPAR information reported is used by the ATO in data analytics to identify non-compliance with a range of tax obligations, such as lodging income tax returns, reporting the correct amount of income, lodging BASs, being registered for GST when required, and using valid ABNs. This information will also flow through to pre-filling information for sole traders with contracting income, making it easier to lodge correctly the first time. Although businesses will have until 28 August to lodge their TPARs, contractors should ensure that the pre-filled information is complete and finalised before lodging, especially in cases where contracting income from a business or in general has not been reported previously.
Does your business need guidance on whether you will need to lodge a TPAR this year? Contact our offices today for professional advice. We can help with this and many more tax-related issues this tax time and help you plan.