Contractor payments (TPAR) are increasingly on the ATO’s radar
The deadline for submitting this report is the 28th August 2023. While it may be difficult sometimes to differentiate between an employee and a contractor the form still has to be submitted. Your accounting software can most likely help.
The ATO has drawn a line in the sand for reporting contractor payments and warns tardy businesses that missing its deadline will involve penalties and set off alarm bells about dodgy behaviour.
It is estimated that the shadow economy costs Australia $12.4 billion a year in lost taxes. It is the job of the ATO to recover this money and reports such as the Taxable Payments Annual Report (TPAR), due by 28th August, and other ATO systems are increasingly effective at clawing this money back.
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 such dishonest behaviour.
All lost taxes have to be made up by those business and individuals who do not indulge in activities such as paying cash, payments that temp some to pay less tax than they should. It may seem like a win to some, but it is a penalty for every honest business and individual.
The ATO says, "If you are asking for cash and not declaring it to the ATO, you will receive a ‘please explain’ and you will be penalised. It’s not a matter of ‘if’, it’s a matter of ‘when’.”
The TPAR system recorded $400 billion in payments made to almost 1.1 million contractors in 2022–23.
The typical businesses paying contractors included those in building and construction, cleaning, courier and road freight, information technology and security, and investigation or surveillance services.
The Tax Office had recently issued more than 16,000 penalties to businesses which failed to lodge previous TPARs with the average penalty about $1,110.
The ATO also said that failure to meet the deadline could be seen as a “red flag and prompt closer scrutiny”.
The TPAR is just one weapon in the ATO’s arsenal helping expose missing income and keeping things fair for businesses doing the right thing.
Steps to work out if you need to lodge
Step 1: calculate your total payments received from contractors for each relevant service.
Add up all payments your business received for each relevant TPRS service during the financial year. Include payments received when employees, contractors or sub-contractors performed services on your behalf.
Step 2: calculate your current or projected business income
If you have been operating your business for:
- the full financial year: use your current business income for the year
- less than 12 months of the financial year: use your projected business income. Do this by working out what your business income will be for the next full financial year.
Step 3: calculate what per cent of your business income is from a relevant service
Calculate this percentage by using the following formula for each financial year:
Total payments received for a relevant service ÷ current or projected business income x 100 = %
You must lodge a TPAR if:
- 10% or more of your business income for the financial year is from a relevant service, and
- you made payments to contractors for a relevant service during the year.
If you need to lodge a TPAR, report the total contractor payments made to each contractor for the relevant service provided on your behalf.