Have you forgotten/not worried about the recent Australian changes to the Building Construction Industry tax requirements? The first due date for reporting taxable payments made to sub-contractors is 21st July 2013. Does this apply to your business and if so, can your business system and current processes produce the required data?
What is Taxable Payments Reporting for the Australian Building and Construction Industry?
From 1 July 2012, businesses in the Building and Construction industry are required to report the total payments they make to each contractor for Building and Construction services each year. You need to report these payments to the Australian Taxation Office on the Taxable payments annual report. (www.ato.gov.au)
The ATO will use the information from the reports collected in order to data match. This helps them to find businesses not meeting their tax obligations i.e. – income not declared, GST not remitted, or invalid ABNs. The requirement for lodgement is relatively early, 21st July 2013. This is so that this data can be applied to 2013 year tax returns and Business Activity Statements. Business System Alchemy has worked with businesses subject to a similar scheme in the UK. This Construction Industry Scheme (CIS) is now much broader and from what we have seen there, the reporting of payments is the first step in a new withholding tax system.
Even though there is no tax payment required under this scheme, there are penalties for not lodging a report.
Who has to Report?
If your business is “deemed” (self assessed) to have 50% of the current year’s revenue or 50% of business activity in either the Current or Prior year from Building and Construction, then an annual report is required to be lodged. If you aren’t sure if this refers to your business, check directly with the ATO.
What has to be Reported?
The report must contain the following for each of your Contractors:
- Gross amount paid for financial year (inc GST)
- Total GST included in gross amount
Is your vendor data complete for items 1 through 3? Are systems in place to ensure new vendors are added to your database and maintained correctly?
A catch for items 4 and 5 is that the ATO is only interested in amounts paid as at 30th June, not invoices received. Even if your business is paying GST on an accruals basis, this report has to be produced on a cash basis. Sub-contractor claims assessment and retentions processes will need to be reviewed as well, so that the data can be reported on easily.
Additionally, ATO grouping provisions do not apply. Unfortunately, this means that every ABN in a group structure that meets the Building and Construction services definition must report. To make it more interesting/challenging, each ABN is not required to report payments made to other members of the consolidated group.
Which payments are included?
Payments for services provided are to be included, materials only invoices are excluded. Where materials are included in a services payment, the whole amount can be included. In the situation where the services are incidental to the supply of materials, the whole amount can be excluded.
The ATO has a broad list of services which are to be included where the activity is “performed on, or in relation to, any part of a building, structure, works, surface or sub-surface”. Refer to the ATO fact sheet for the list of services (see link at end of article).
What should you do next?
The ATO assumes that all the data required to report will be found on your contractor’s invoices. In theory this is correct. However, in practice, no business of any size can afford the time to extract every invoice. You will need to rely on the quality of the data in your business system.
1) Don’t panic ! If you are subject to the reporting requirements, check to see if your business system software vendor has registered their intention to have their software produce the new annual report by clicking here . Contact your vendor to see if this is a patch for currently installed versions or requires an upgrade to a new release.
2) Assess your data to determine how you will classify and tag suppliers and their transactions so that the report can be generated. Regardless of whether your software vendor has a report or not you will need a method to identify what is reportable.
3) Check your data for completeness. Don’t be surprised if work-arounds exist in your processes to bypass ABN and correct business name recording. Experience has shown that AP/Vendor details are not as strictly maintained as AR/Customers details (needed to collect payments!). AP data will require review and a cleansing project undertaken.
Still need Help?
Business System Alchemy are experienced in the Building and Construction industry, can translate systems speak to plain English and deliver system change projects, big or small. We are able to review, recommend and if required, implement process changes to drive your systems.