ATOs increasing scrutiny on Taxable Payments reporting system

This measure aims to identify contractors who don’t report – or under-report – their income. Penalties apply to organisations that fail to make the appropriate employer reporting requirements. With a base penalty for each period of 28 days that the return is overdue, which can multiply 500 times, we encourage you to be on the front foot with reporting requirements and timeframes applicable.

Who does this affect?

If you engage contractors (including subcontractors, consultants and independent contractors) and your business provides any of following services, you could be required to comply with TPRS and lodge a Taxable Payments Annual Report (“TPAR”):

• Building and Construction Services
• Cleaning Services
• Courier Services or road freight services
• Information Technology
• Security, investigation or surveillance services
• Government entities.

Considering the breadth of the TPRS requirements, not only businesses that primarily offer services in the above industries have TPRS requirements. For instance, for retailers and restaurants that rely on Courier services for deliveries, this service has become central to their business model. They may therefore have inadvertently given rise to TPRS requirements.

Another example is if a Consultancy business engages subcontractors to provide software simulation and testing. The organisation could be required to report an annual TPAR report for Information Technology services where those services make up 10% or more of their total GST Turnover.

What penalties apply?

The ATO will impose penalty units for each period of 28 days that the return was overdue. This is based on whether you are a small, medium or large withholding for Pay-As-You-Go (‘PAYG’) or current GST turnover. Based on the number of penalty units accrued, the ATO will impose a failure to lodge penalty.

If you are a significant global entity, the base penalty can multiply up to 500 times – in our experience this can accrue to penalties as high as $555,000.

Other significant material risks

As part of the data sharing program, the ATO shares information with other statutory bodies such as the relevant state revenue offices. This may likely result in:

Payroll tax audits

Including Contractors, as taxable wages for Payroll Tax is under significant Scrutiny from the State Revenue Offices, with the TPAR forming part of their data matching resource and standard information requests in resulting audits. Resulting penalties from a failure of disclosure may be up to 75% of the tax shortfall.

Superannuation Guarantee Reporting

ATO audits assessing contractors and the requirement to make superannuation guarantee contributions is under significant scrutiny, particularly where many contractors believe they are not receiving their statutory entitlements. Resulting penalties from failure of disclosure may be up to 200% of the superannuation shortfall amount.