Construction companies targeted by ATO letter-writing campaign over new reporting obligations

The Australian Taxation Office announced it will start writing to building and construction businesses, reminding them to finalise their reports on payments to contractors as they will be legally obligated to lodge them for the first time this year.

The federal government established a new reporting regime last year in which building and construction businesses would have to annually report the total payments made to each contractor.

From May 20, 2013, the ATO will be writing to businesses in the sector, which it has “identified as possibly having made payments to contractors” to provide information about lodging the taxable payments annual report.

Although companies have been obligated to collect the data from July 2012, the first reports will be due after the end of the current financial year, triggering the ATO letter campaign.

Thomson Reuters tax expert Terry Hayes told SmartCompany the new regime was aimed at reducing tax compliance risk within the building and construction industry.

“The tax office has identified the building and construction industry as one where there are tax risks, with some businesses failing to make proper payments and even lodge tax returns. There was also a concern there was possibly a certain amount of cash payments going on,” he says.

The reports are due on July 21.

Hayes says with the due date approaching, the ATO wants to ensure businesses have not forgotten their obligations.

“I’ve heard of concerns that some of the smaller industry players might not be aware of this if they aren’t members of an industry association. There is a fair chance some of these smaller builders might be caught out by this, so the letter should serve as a reminder,” he says.

As part of the payments annual report, businesses must provide the contractor’s name, Australian business number, address and the gross amount paid (with GST included).

Hayes says building and construction businesses should already have this information on record.

“All this information should already be there in the company records and this is the argument the ATO used when businesses complained about this new regulation,” he says.

Hayes says the number of contractors used by building and construction companies varies, with larger companies generally using more, and this will influence the amount of time it takes to complete the report.

“The larger ones probably use stacks of contractors, and most of the bigger ones will already have the information recorded, so it shouldn’t be a great issue, but it could take several hours to compile the report.

“The information needs to be extracted for this specific purpose and while the information will be there, it won’t necessarily be in the right format,” he says.

When the new regime was first announced in May 2011, Hayes says it was met with complaints from the industry about extra compliance obligations and costs.

“A lot of people will say it’s just more red tape, which it is, but the rationale is not unreasonable. Yes there will be a cost to do it, but exactly what that will be we won’t know until after July 21.”

The ATO website provides further details about the reporting requirements, including a list of activities which constitute “building and construction“.

From July 2013, the report will be able to be lodged online and after the first year, the ATO intend to allow businesses to be able to report the payments quarterly or annually, rather than just on a yearly basis.