Everyone knows a tradie – don’t they? The building and construction industry is one of the biggest sectors in Australia and plays a major role in our economy. This month any business operating in the sector, small or large, that pays contractors or has paid contractors has new government reporting obligations to consider.
On 21 July, 2013 the first Taxable Payments Annual Report (TPAR) must be submitted to the ATO, meaning that a whole lot of builders, painters, landscapers, labourers and many more should be preparing this week!
This blog post will give you background on the TPAR changes including how it applies to you and how to submit your report using Reckon Accounts business software to ensure your business complies.
Why was TPAR brought in?
TPAR was first announced in the 2011/12 Federal Budget. The government made it clear that the new reporting requirement was being introduced to improve compliance with tax obligations, specifically by contractors.
On the ATO website it states that the information collected will be used to detect contractors who “have not lodged tax returns” or “included all their income on tax returns that have been lodged.”
How to know if you need to submit TPAR
Who do these changes affect? If you run a brick-laying, home decorating, concreting or construction business and you pay contractors, or have paid contractors, in the last financial year you’re likely to be among a list of people affected by this new requirement.
The ATO specifically notes that you need to report if all the following apply:
• you are a business that is primarily in the building and construction industry
• you make payments to contractors for building and construction services
• you have an Australian Business Number (ABN).
Generally, you’ll be considered to be primarily in the building and construction industry if:
• your business received more than 50% of their annual income from providing building and construction services in the 2012/13 financial year;
• your business activity related to the building and construction services for more than 50% of their time during the 2012/13 financial year;
• if your business derived 50% or more of their business income from providing building and construction services in the 2011/12 financial year.
If you are in any one of these three categories the reporting requirement will apply to your business.
If you have any doubts or questions around whether your business is classified as part of this group you should check with the ATO and/or an accounting professional.
The ATO has a list of examples of building and construction services on its website that can offer further guidance, but please be mindful that not every business type appears here.
A TPAR needs to include transactions which have been made to suppliers or contractors in the 2012/13 financial year (ie year ending 30 June 2013).
Any transaction that includes a labour component needs to be included, the only exemption is a material only transaction. If, for example, an invoice for wooden logs was processed through a building business, this would most likely not need to be reported, however if that invoice had installation of wooden logs as well as the cost of these primary materials, this would qualify and need to be included in TPAR reporting.
On your TPAR the details you’ll need to include for each contractor for each financial year are the ABN (if known), their name, their address, the gross amount you paid for the financial year (this is the total amount paid inclusive of GST) and the total GST included in the gross amount you paid. The details you need to report will generally be contained in the invoices you receive from your contractors.
Managing suppliers and contractors in regards to TPAR
Whilst it is not a mandatory requirement, it is recommended that a summary of the information you plan to submit to the ATO is provided to relevant suppliers and contractors. The ATO has put together a payee information statement you can easily fill out to provide this information.
If your business has suppliers or contractors without ABNs, the information on transactions still needs to be reported. Consult your accountant if you are unsure of what your requirements are under this system.
How to activate the Taxable Payments Annual report in your accounting software
Reckon Accounts business range of accounting software is now enabled for TPAR to help small to medium sized business in the building and construction industry, as well as the accounting professionals that support them. In the latest version of Reckon Accounts Accounting and above, you can activate the new report under the preferences menu.
Once you’ve enabled ‘taxable payments reporting’ in your Reckon Accounts business software, you’ll be able to complete the form with your company information and assign your contractors to the report. Detailed instructions detailing how to prepare TPAR and extracting data is available via the Reckon Knowledge Browser.
Where to get help with your submission
You can submit TPAR yourself or speak to an accounting professional about submitting this on your behalf, but note they must be qualified to do this for you. Good news this week is that if you use a registered BAS Agent they can also now submit on your behalf.
Financial reporting and compliance need not be a headache – whilst this is general advice, keeping your accounting software up to date and ensuring you maintain all necessary paperwork and reporting with your bookkeeper or accountant will ensure your regular ATO reporting and tax time is much less of a headache.
Please note that this blog post is general in nature only. You should seek advice about your individual circumstances from an accounting professional or the ATO.