CIB FEATURE ARTICLE – ATO CONTRACTOR REPORTING REGIME – ARE YOU READY?

The first ATO lodgement date for the reporting of payments made to contractors in the building and construction industry is fast approaching. The aim of the new regime is to improve the compliance of contractors in this industry.

If your business operates in the building and construction industry and you make payments to contractors for building and construction services, then you are required to lodge.

The Taxable Payments Annual Report is due 21st July 2013 for payments made in the 2012-13 financial year. If you lodge business activity statements quarterly, the lodgement date is 28th July 2013.

The information to be reported includes the name, ABN, address, gross payments, and GST, for each contractor engaged. Depending on the number of contractors involved, this could be a very time consuming process. If you require assistance in finding the best way to compile this information, do not hesitate to contact our office.

FOCUS ON CONTRACTORS EMPLOYEES

Background

There is currently an increasing focus on the nature of the contractor relationship, with government agencies taking a hard line. The ATO, Office of State Revenue (OSR), and WorkCover, are all reviewing these relationships, and taking the view that the reality of the relationship is the key issue, despite the paper trail that may be on hand.

ATO Targets

The ATO is currently targeting the building and construction industry, due to high levels of non-compliance prevalent there, estimated at 51%. The introduction of the contractor reporting regime will increase their capacity for data mining, which will likely flow on to increased audit activity in this area. In 2012-13, the ATO conducted approximately 1,100 audits on businesses suspected of incorrectly treating employees as contractors.

Other factors considered in generating audit requests included tax history, comparison to benchmarks, percentage of contractor payments compared to wages, workers compensation payments, and complaints from workers.

Future industries to be targeted include:

  • Cleaning
  • Call centres
  • Security n Logistics
  • Retail n Education
  • Health & Aged Care n Transport
  • Tourism, hospitality, restaurants and cafes
  • Entertainment and telecommunications

We are finding increased audit activity by WorkCover and the OSR in these industries also.

ATO Focuses

The main focus is on ensuring obligations are met in the following areas:

  • GST
  • FBT
  • PAYG withholding
  • Superannuation Guarantee

Indicators

The determination of whether a contractor is in fact an employee is not always clear. The defining factors, include:

  • Ability to subcontract or delegate work;
  • Basis of payment, i.e. hourly rate or task-based;
  • Provision of equipment, tools and other assets;
  • Commercial risks;
  • Control over work;
  • Independence, i.e. hours of work, etc.

The approach being taken by the ATO is that an employee cannot be treated as a contractor by simply dressing up the arrangement with documentation. The following evidence is not sufficient to prove a contractor relationship:

  • Having a business name
  • Able to quote an ABN
  • Registered for GST
  • Provision of Tax Invoices
  • Part-time or casual work arrangements
  • Specific qualifications
  • Having a written contract for a ‘contract arrangement’.

These factors will not have any bearing on determining the actual nature of the relationship.

Contractors are being targeted, and it is essential that they are correctly treated to avoid unfavourable outcomes in the event of an audit. If you have any concerns about your contractor relationships, it may be worthwhile having them reviewed by one of our experienced team members.