How confident are you that you comply with the ATO requirements regarding independent contractors whose services you are using?
The ATO’s Black Economy Taskforce has been carrying out investigations and data-matching. They reveal significant non-compliance in the engagement of labour-based independent contractors within the IT segment. This includes technicians and sales personnel who are engaged as Independent Contractors (IC).
The ATO identifies the segment within which a business operates via embedded industry coding inherent in the ABN number. So that makes it virtually impossible to hide from the ATO’s data-matching capability.
IT businesses have just months to update their processes to comply with the expanding Australian Taxation Office (ATO) auditing program. Already it has clawed back more than $2.7 billion from tax-dodging in the building and construction industry.
A key part of the ATO’s Black Economy Taskforce recommendations is to focus a crackdown on compliance in a number of segments where non-compliance is known to be rife.
This is why the ATO has introduced Taxable Payments Reporting System (TPRS) into the IT segment. It requires companies that engage IT contractors to keep detailed records of all funds paid to those contractors during the tax year. And companies must report them to the ATO by August of the next year. The first report is due next year.
Why The Crackdown?
Many Australians believe an ABN is a business licence that confers special rights on an individual and automatically means they are running a business enterprise. From a social justice point of view, this gives them an unfair taxation advantage to which they are not entitled. In many cases they ignore the superannuation payment obligations relevant to contractors, a matter of concern to the ATO.
The following information comes directly from the ATO website:
If you’re running a business providing information technology (IT) services (even if it’s only part of the services you provide), you must lodge a Taxable Payments annual report (TPAR) for each financial year that you:
- have an Australian business number (ABN), and
- make any payments to contractors for IT services they provide on your behalf.
Payments made to employees are not included in your TPAR.
If your business provides mixed services, not just IT services, you may need to lodge a TPAR if the payments you receive for IT services make up 10% or more of your total GST turnover.
You must reassess whether you need to lodge a TPAR each year.
Your first TPAR for payments made to contractors from 1 July 2019 to 30 June 2020, will be due by 28 August 2020.
To make it easier to complete your TPAR, you should check the way you currently record information about your payments to contractors.
Some Examples Of IT Services
- 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
- commission Sales
- technical support.
For the complete article go to ATO Work out If You Need to-report/IT-services.
The good news is there is a better way to engage labour based IT contractors, lawfully, which removes this reporting obligation and mitigates the risk of the engaging being non-complaint under the Personal Services Income (PSI) legislation and the SHAM contracting provisions of the Fair Work Act.