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ATO Exposure Draft – Reporting Taxable Payments

December 16 2011

Further to the below blog, please see the here relating to reporting taxable payments in the building and construction industry.

Independant Contractors – Reporting

The link above is an extract from Pitcher Partners recent newsletter – the Australian Taxation Office (ATO) is clamping down on contractors/subcontractors and for that matter, so is the State Revenue Office (SRO) which collects WorkCover and Payroll Tax.

The first step in the process looks to be that building construction businesses (whether trading as a company, trust, partnership or sole trader) will now be required to report contractors/subcontractors that they employ, to the ATO.

We know with absolute certainty that the ATO and SRO provide information to each other – just a day or so ago we had the experience where a person applied for registration as a tax agent and then completed an application for WorkCover. The SRO (who handles WorkCover) called that person and asked a number of very direct questions. When asked why these questions were asked, the person was told that they arose because of the information exchange between the ATO and SRO and that their respective records needed to record this information.

What does this mean – well for you as a building construction business, if the person or persons your are paying as a contractor or sub contractor does not in fact qualify under the various taxation definitions, then you will become liable for the compulsory superannuation (9%) WorkCover and where applicable, payroll tax. This could also include penalties and interest where the arrangements go back for some time – hopefully non of the taxing bodies will do this however the SRO has been very aggressive in this area and one business that we know of has been hit with interest and penalties in excess of $75,000 covering a four year period.

For the Contractor/Subcontractor the ramifications are different but just as onerous as they will not be able to split their income, provide cars for their spouse through the business and will be denied deductions not ordinarily available to salary and wage earners.

The commencement date for the reporting of contractors/subcontractors to the ATO is 1 July 2012.

You have the rest of this financial year to determine whether the contractors/subcontractors that you engage in your business, are in fact bona fide. You need to protect your business.

Please do not hesitate to contact us should you need to clarify any matter in relation to the definition of a bona fide contractor/subcontractor.