Report payments made to contractors: ATO warns as TPAR deadline looms

Australian businesses that need to report the payments they made to contractors during the financial year, and are required to lodge a taxable payments annual report (TPAR), are being reminded by the Australian Taxation Office (ATO) to do so by the end of the month. 

Businesses that need to lodge a TPAR include those in the building and construction industry, as well as businesses that provide cleaning, courier and road freight, information technology and security, investigation or surveillance services and have paid contractors in relation to these services.

Businesses need to report payments made to contractors who performed services on their behalf during the financial year, by August 28, 2023. These can include subcontractors, consultants and independent contractors and they can operate as sole traders (individuals), companies, partnerships or trusts.

More than 16,000 penalties were recently issued by the ATO for businesses that didn’t lodge their TPARs for previous years, despite receiving multiple reminders. The average penalty for not lodging was around $1,110. 

Collecting information about contractor payments in the TPAR helps the ATO to identify contractors who do not meet their tax obligations and ensure businesses aren’t disadvantaged by competitors that don’t declare all their income.

In a statement, ATO Assistant Commissioner Tony Goding said the Taxable Payment Reporting System helps maintain a level playing field by ensuring all businesses pay a fair share of tax.

“While most businesses do the right thing, not reporting payments to contractors and deliberately under-reporting income makes it unfair for honest businesses,” he said.

“It may also be seen as a red flag and could prompt closer scrutiny from the ATO.

“The Taxable Payments Reporting System is just one tool in the ATO’s toolbelt helping expose missing income and keeping things fair for businesses doing the right thing.

“We use a range of information in the TPAR to check for red flags, like not including income, not lodging tax returns or activity statements, overclaiming GST credits or misusing Australian business numbers”.

Goding said it is getting harder for businesses to hide from the ATO.

“Like using cash payments to avoid tax, as the TPAR data gives the ATO the extra puzzle pieces it needs to catch-out dodgy behaviour,” he said.

“We know there are some who deliberately don’t report or under-report their income, making it unfair for honest businesses.

Golding said “dodgy businesses doing ‘cashies’” are on notice as the ATO seeks to stamp out shadow economy activities. 

“If you are asking for cash and not declaring it to the ATO, you will receive a ‘please explain’ from the ATO and you will be penalised. It’s not a matter of ‘if’, it’s a matter of when,” he said. 

“Every dollar of tax dodged is a dollar that can’t be used for vital services like health and aged care. The TPAR program helps to prevent billions of dollars being lost to the shadow economy.”

The ATO estimates the shadow economy costs the Australian economy $12.4 billion every year in unpaid taxes.