This information is to be used to cross match the data with tax returns to detect contractors who may have failed to disclose all their income.
Who needs to complete the report?
From 1 July 2012, businesses primarily in the building and construction industry (i.e. 50% or more of your business income, or 50% of your business activity) must report the total payments they make to each contractor for building and construction services each financial year. Businesses, including sole traders or contractors wholly or principally engaged in the building and construction industry will be required to report. Private individuals such as owner builders will NOT be required to report.
What payments must be reported?
Payments made under a contract, either in whole or in part, for the supply of building and construction services must be reported. Payments that are made for either the supply of purely goods/materials (not services) or payments for employee salary and wages don’t need to be reported.
Who is reported on?
Any contractor or sub-contractor who is engaged in the building and construction industry, who quotes their ABN to the purchaser and receives a payment for building and construction work. The reporting will NOT generally apply to domestic building projects and will be limited to business-to-business transactions. However, where a domestic building project is undertaken by builders using any sub-contractors, then they will need to report those payments.
The report will officially be known as a ‘Division 405 Report’. It will contain information that identifies the ‘supplier’ and the payments to the ‘supplier’ in the reporting period. Businesses will be required to report the actual payments made to each contractor and all payments must be reported as there is no minimum reporting amount.
The report must include the following details:
- Contractor’s Name
- Contractor’s ABN
- Contractor’s Address (if known)
- Total amount paid or credited to the contractor during the financial year
whether any GST has been charged
It is important to note that even though you or the supplier may be registered on a cash basis for GST, all reporting for this new report must be done on an accruals basis. At this stage reports will need to be made annually but this could change as there is provision in the regulations for the reports to be lodged quarterly. You will need to begin recording payments from 1 July 2012, with the first annual reports required on the 21 July 2013. A business failing to provide the report by the due date may be liable to pay a penalty of $2,200.
What do I need to do?
You need to consider whether your current record keeping systems are adequate to record this new information. The last thing you want to do in July 2013 is re-trace the last 12 months of contractor payments. If you are an employer within the Building & Construction Industry you need to ensure that your contractors are compliant and also be aware that in some cases the Tax Office could in fact deem some contractors to be employees.
If you have a contractor who is an individual operating under an ABN but works the majority of his/her time for you and only provides labor services (as opposed to providing both goods and labor) then the Tax Office could view them as your employee rather than a contractor. This would make you liable for the Superannuation Guarantee and Pay-As–You-Go Withholding Tax.
If you have any queries in relation to your reporting requirements please call our office on 03 9435 4444.