You may have recently received some cryptic correspondence from the ATO (or indeed, from your accountant) warning you about the need to lodge a TPAR in the near future. You may well be wondering what on earth a TPAR is, and rightly so, who needs another acronym in their busy lives? If this is you, read on.
In this modern age of sole traders, the gig economy, freelancing and other related shenanigans the ATO have become rather concerned about tracking who is earning what to ensure that everyone pays their fair amount of tax. For employees it’s an easy task, every year your employer tells the ATO what you earned and how much PAYG tax was withheld, but for contractors it’s a different story as there is no information being handed over. With no records kept it’s hard for the ATO to tell if contractors are being honest when it comes to reporting their income on their tax return. This is where TPAR (!) comes into play.
TPAR = Taxable Payments Annual Report
Once a year, all businesses within certain industries (more on this later) will need to report to the ATO detailing payments made to contractors. The details you’ll need to provide can be found on the contractor’s invoice and will include:
- Gross amount paid including GST
In case you’re thinking this sounds like a whole lot of extra compliance work for your business, then you’d be right, it is! Best bet is to keep a running register during the year in a spreadsheet using the ATO suggested format which you can find here. The report is due by 28 August each year and can be lodged online via your AusKey or by sending in a paper form.
Does this affect your business?
The ‘good’ news is that only certain industries are affected by these rules and they are as follows:
- Building and construction services
- Cleaning services (from 1 July 2018)
- Courier services (from 1 July 2018)
- Road freight services (from 1 July 2019)
- IT services (from 1 July 2019)
- Security, investigation and surveillance services (from 1 July 2019)
I’ve highlighted IT services above because this is the one that will impact our client base the most. Here I’ve copied the ATO’s guidance on what constitutes an IT services business.
IT services may be performed on site, or remotely through the internet. They include services that support or modify the operation of hardware or software, such as planning and designing computer systems to integrate computer hardware, software and communication technologies.
Simply using IT hardware or software in your business to provide a service (other than an IT service) doesn’t make your business a provider of IT services. For example, you would not be ‘providing an IT service’ just because your business uses software to provide an accounting, project management, or word processing service as part of running your business.
Some examples of IT services include:
- computer facilities management
- computer hardware consulting
- computer network systems design and integration
- computer programming
- computer software consulting
- internet and web design consulting
- IT consulting
- software development
- software installation
- software simulation and testing
- systems analysis
- technical support.
Examples of activities that are not IT services include:
- mass producing computer software (that is, the reproduction of recorded media)
- leasing or hiring computers or other data processing equipment (we consider this to be ‘goods and equipment rental and hiring services’). However, if the seller or lessor of the hardware or software modifies the hardware or software for the purchaser or lessee, or develops specific software for them, then those services are an IT service.
- providing data processing services or computer data storage and retrieval services (we consider this to be ‘data processing, web hosting and electronic information storage services’)
- installing computer cables (we consider this to be ‘electrical services’).
Are there any exclusions from reporting?
Yes, but not many. There are exclusions from reporting payments to contractors if they fall under one of the following:
- Payments for materials only
- Payments for incidental labour (i.e. the labour is incidental to materials provided)
- Unpaid invoices as at 30 June that year
- PAYG withholding payments (these get reported via the PAYG Payment Annual Report)
- Payments within consolidated groups
- Payments for private and domestic services (e.g. paying someone to clean your home)
If you’re unsure about the obligations of your business to lodge a TPAR with the ATO, why not get in touch? We’ve helped countless businesses with their compliance woes and we’d love to help you too.