Building & construction – key reporting changes

From 1 July 2012 entities operating in the building and construction industry will be required to adhere to new reporting requirements.  The requirements have been introduced  to address the significant levels of non-compliance by contractors within the industry, as identified by the Australian Tax Office (ATO).

The changes require the purchaser of certain supplies to report details of the purchase to the ATO.

For entities operating in the building and construction industry it’s important to be aware of the changes in reporting requirements as failure to comply could result in penalties being applied.  Entities on the fringe of this industry should review which activities are considered to be in the nature of “building and construction” as the provisions are far reaching. Failure to comply with the new requirements could result in penalties being applied.

A summary of the key issues to be aware of are outlined below.

Who needs to report?

A purchaser will be required to report supplies of building and construction services to the Commissioner of Taxation if:

  • The purchaser is carrying on a business primarily in the building and construction industry
  • The purchaser has an Australian Business Number (ABN)

AND

  • The purchaser receives
    1. Building and construction services; or
    2. A supply of both goods and building and construction services, if the services are not merely incidental to the supply of goods.

What activities are considered “building and construction services”?

There are a broad range of activities that are considered to be in the nature of “building and construction”.  These include activities from initial design and preparation, through to the construction and maintenance of any part of a building, structure, works, surface or sub-surface.

Carrying on a business primarily in the building and construction industry

For the reporting provisions to apply, the purchaser must be carrying on a business that is primarily in the building and construction industry.  This will be the case where:

  • In the current financial year, 50% or more of the purchaser’s business activity relates to building and construction services;
  • In the current financial year, 50% or more of the purchaser’s business income is derived from providing building and construction services; or
  • In the last financial year, 50% or more of the purchaser’s business income was derived from providing building and construction services.

Exclusion for withholding payments

Transactions do not need to be reported if the payment is a withholding payment in accordance with the Income Tax laws.  This means that payments made to individuals and entities that are subject to the Pay As You Go (PAYG) withholding rules (for example, employees and contractors that do not have ABNs) will be excluded from the requirements.

Frequency of reporting

Taxpayers will be required to report to the ATO on an annual basis.  At this stage, the Government has indicated that the first report must be lodged by 21 July 2013.

What details need to be reported?

The ATO has indicated that the following details will need to be reported in relation to each affected supplier:

  • ABN
  • Name
  • Address
  • Gross amount you paid for the financial year (this is the total paid including GST); and
  • Total GST included in the gross amount paid.

Take Action now

While the first report does not need to be lodged until July 2013, steps should be taken now to ensure that the required information can be effectively captured for the whole financial year.

Entities that will be subjected to the new reporting rules should be identified as soon as possible (prior to the end of the current financial year).  It will then be necessary for those entities to put in place systems to identify suppliers of building and construction services and record the required information from 1 July 2012.