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Black Economy measure: Expanding the Taxable Payments Reporting System

Expanding the Taxable Payments Reporting System

Geoffrey Yiu looks at a specific Black Economy measure currently before Parliament: the expansion of the Taxable Payments Reporting System.

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Partner, Corporate Tax

KPMG Australia

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Businesses in the building and construction industry currently stand alone in having to lodge a Taxable Payments Reporting System (TPRS) disclosure for the year ended 30 June 2018 with the Australian Taxation Office (ATO) by 28 August.

For the 2018-19 financial year, subject to the passage of legislation currently before Parliament, other businesses will be included, specifically those operating in the cleaning and courier industries.

Furthermore, the Commonwealth Government announced in the 2018 Budget that it would extend the TPRS regime to the road freight, information technology services and security/surveillance industries from the financial year 2019-20.

It is therefore timely to explore some of the key features of the TPRS.

TPRS reporting

The TPRS operates on a 30 June year-end for all reporting entities, regardless of the timing of their income year. This is because the focus of the ATO is on the tax affairs of the sub-contractors, rather than on the reporting entity.

In the case of each specified industry, the definition takes its ordinary meaning. Therefore a business must self-assess whether its activities come within the ambit of TPRS. The ATO’s guidance for the building and construction industry is that an entity will be considered to be in a relevant industry if more than 50 percent of its turnover or activities in the current or previous financial year is from that industry.

To date there is little evidence of the ATO issuing notifications to affected businesses that it expects a TPRS report to be lodged, and so the onus is on the business to take the initiative in working out what its obligations are.

Reporting payments to sub-contractors

Generally, a TPRS report should only include payments to sub-contractors who carry out services of the specified type on behalf of the reporting business. For example, a construction business would report payments it made to a roofing sub-contractor through TPRS, but not the payments it made for management consulting services or legal advice. Once the TPRS regime has been extended as described above, that same construction business would still not need to report payments to cleaning and IT contractors for example, because it does not provide those services itself.

While each entity within a tax consolidated group is required to lodge its own TPRS report if it is in a relevant industry, there is no need to report on payments made to other members of that group.

Time will tell whether the TPRS is effective in drawing sub-contractors who are on the fringe of the black economy closer into the tax net. In the meantime, head contractors need to make sure that they have the systems and processes in place to manage the TPRS obligation with accuracy and timeliness.

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