Building contractors to report all sub-contract payments under new Government discussion paper proposal

The Government has released a discussion paper outlining new rules for contractors in the building and construction industry, which would force them to lodge a record of every payment made to sub-contractors.

The move was outlined in the May budget as a measure to collect lost goods and services tax revenue, and is expected to net the Government over $500 million over the next four years. The plan was dressed up as part of a package to clamp down on tax compliance.

Announcing the discussion paper yesterday, Assistant Treasurer Bill Shorten said it would spark an opportunity “to address some misconceptions about the aims and requirements of the reporting regime”.

CPA Australia spokesman Paul Drum says the measures are welcome, as “we are in favour of everyone paying their fair share”.

“The fact the Government is doing this demonstrates a commitment, and I think the fact they’ve seen this as worthwhile suggests voluntary compliance isn’t as strong as it needs to be.”

The scheme will see builders lodge each payment made to sub-contractors to the Australian Tax Office using a platform that was built as part of the introduction of the GST in 2000.

The new discussion paper is squarely aimed at those in the building and contracting industry. Shorten believes some contractors are either unaware of their obligations, or are at least under-reporting them.

“While the ATO has made an effort over the years to educate and support contractors in respect of their taxation obligations, ATO data nevertheless indicates that compliance with taxation obligations by contractors is poor and presents a systemic risk to revenue collection,” the paper states.

“There are also associated problems with contractors not complying with GST requirements, record keeping requirements and the personal services income rules.”

The focus on the building and construction industries is due to research undertaken by the ATO which showed that out of several different industries, builders were the least compliant. The industry also accounts for 20.7% of all debt owed to the ATO in the micro-business market.

As a result, the proposed laws suggest builders need to lodge all their payments made to sub-contractors with the ATO. This would work as part of the existing payment, ABN and identification verification system, or “PAVIS”.

This will allow the ATO to use data-matching to provide information for future audits, theoretically resulting in higher compliance rates and more GST revenue for the Government.

But Shorten says this won’t introduce any new requirements for builders, as they need to record the payments in any case.

“The reporting regime will help honest contractors and businesses that are currently at a competitive disadvantage, compared to those contractors who fail to pay their fair share of tax,” Shorten said.

“The introduction of a reporting regime will help to level the playing field within the building and construction industry, to the benefit of compliant contractors and businesses.”

Submissions on the discussion paper will be accepted until June 27.