Why has the ATO instituted the TPAR?
As part of its Black Economy Task Force, the ATO began seeking to recover income taxes not paid by contractors working in building and construction. After being rolled out into this sector in the 2012-2013 tax year, the program was expanded to include other types of services that rely on contractors for services. By requiring businesses, including those operating as sole traders, to report on payments made to contractors with a taxable payments annual report (TPAR), the ATO can cross check to ensure that income is being reported to the ATO accurately on tax returns.
What businesses need to lodge Taxable Payments Annual Report?
The requirement to file a taxable payments annual report is based on the services provided and the percentage of the business’s activity or income comes from that service as follows.
- Building and construction – if either 50% or more of business income is from building and construction services, or 50% or more of business activity is building and construction services.
- Cleaning services – if more than 10% of business income comes from cleaning services.
- Courier or road freight – if 10% or more of business income is from courier and road freight services.
- Information technology – if 10% or more of business income comes from IT services.
- Security, investigation or surveillance – 10% or more of business income is from security, investigation or surveillance services.
- Government – federal, state, territory and local government entities, unless an exemption applies to the particular entity.
Any business with an ABN meeting these criteria and paying contractors for services needs to fulfill the reporting requirements.
What needs to be reported?
Most often, the details that need to be reported can be found on invoices from contractors. These include:
- Name of business or individual
- Total payment amounts for the financial year:
- Gross amount paid (including GST plus tax withheld)
- Total GST paid to contractors
- Total amount withheld when ABN was not quoted.
Items that don’t need to be reported, include:
- Payments for materials only
- Payments for incidental labour
- Unpaid invoices as at 30 June each year
- PAYG withholding payments
- Payments within consolidated groups
- Payments for private and domestic services
Fortunately, most accounting programs such as Xero and Quickbooks, include functions to create TPAR reports for the ATO.
If you don’t use one of these accounting programs, you can use the ATO business portal or online services for individuals and sole traders and complete the ATO Taxable Payments Annual Report form.Your tax or BAS agent can also help with TPAR lodgement.
If your business is not required to lodge a TPAR
If you provided services in one of the industries listed but have determined that you don’t meet the criteria for lodgement, you can submit a TPAR non-lodgement advice. This enables you to lodge multiple years on the same form advise when you are not required to lodge in the future and give a reason.
Businesses falling behind in reporting Taxable Payments Annual Report
In March 2021, the ATO reported that 60,000 businesses (out of the 280,000 estimated that are required to file) were not meeting their taxable payments reporting requirements by missing the 28 August deadline in 2020. ATO Assistant Commissioner Peter Holt highlighted that the reporting obligations not only apply to the building and construction industry, but to the other service providers.
Visit the ATO website for detailed information on the TPAR.