Housing industry warns contractor crackdown will hurt SMEs and push up cash payments and house prices

The Housing Industry Association has warned that SMEs in the building and construction industry will bear the brunt of the Government’s crackdown on contractors, arguing the proposal might have the unintended consequence of increasing the number of cash payments in the sector or lifting house prices.

In a submission to Treasury, HIA says while it supports the Government’s desire to crack down on tax evasion, it has “serious concerns” about the potential impact of the Government’s plans to compel building and construction businesses to report annually to the Australian Taxation Office payments they have made to contractors.

“This new regulatory framework will impose significant additional administrative and accounting costs onto principal contractors and builders in the residential building industry,” says David Humphrey, senior executive director of business, compliance and contracting at HIA.

“Coupled with existing Business Activity Statement (BAS) reporting obligations, they unnecessarily add to the burdens and risks of operating a small business.”

HIA estimates that small business and sole traders account for more than 90% of the residential building industry.

According to the industry association, the focus on business-to-business transactions rather than business-to-consumer transactions means a “very large part of the so-called ‘cash’ or ‘black’ economy will still operate intact, and may even expand as a result of the introduction of transaction reporting.”

“In failing to adequately address the issue of the administrative red-tape burden being imposed on businesses required to report, the paper consequently neglects to consider the harmful impact these burdens will have on housing affordability,” HIA says.

In its targets for 2011-2012, the ATO in June described sham contracting, where an employee is wrongly classified as a contractor to save on employee entitlements, as “prevalent” in the building and construction industries.

“Since commencing this work in 2009, we have completed approximately 2,000 level-playing-field reviews and are concerned about the extent of ‘sham’ contracting we have detected. Up to 35% of businesses we visited were incorrectly treating employees as contractors,” the ATO said.

A spokesman for the Assistant Treasurer Bill Shorten this morning said the regime will not add significant administrative or accounting costs to contractors as it only requires businesses to report information that they are already required to collect and record under the existing taxation law. 

“This measure is about ensuring that people pay their fair share of tax, not creating new red tape. That’s why it was welcomed by many contractors and businesses that are currently at a competitive disadvantage, compared to those contractors who fail to pay their due tax,” the spokesman said.

“The construction industry tax compliance regime will not target consumers who directly hire tradespeople. It is very specifically aimed at business-to-business transactions within the building and construction industry. The ATO already looks at the cash-economy as part of their more general compliance activities.

“The design and implementation of the construction industry compliance regime is undergoing consultation with industry stakeholders and a decision about including or excluding owner builders will be considered in light of industry views and the policy intent of the measure.”

Last month, Richard Calver, legal counsel for Master Builders Australia, said the scheme could potentially affect 400,000 contractors, but is based on Australian Tax Office figures showing just 792 taxpayers who have done the wrong thing.

Calver added it would cost individual contractors $300 per year to comply, or at least $45 million per year across the entire industry.