You must read this if you are a business in the building and construction industry that pays contractors for building and construction services.

The Australian Taxation Office is really stepping up its activity with this new system and you will need to be ready.

To make it easier to complete the annual report you may need to change the way you currently record your contractor and accounting information.

That is where we can help you with Our Unique 5 Step process and our fixed price accounting packages tailor made for your business.

From 1 July 2012, businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year. You need to report these payments to the ATO on the Taxable payments annual report.

As part of the 2011-12 Federal Budget, the government announced the introduction of taxable payments reporting for businesses in the building and construction industry.

The aim of the system is to improve compliance with tax obligations by those contractors who are currently not doing the right thing.

The information reported about payments made to contractors will be used for ATO data matching to detect contractors who have not:

• lodged tax returns
• included all their income in returns that have been lodged.

• you are a business that is primarily in the building and construction industry
• you make payments to contractors for building and construction services
• you have an Australian business number (ABN).

• in the current financial year, 50% or more of your business activity relates to building and construction services
• in the current financial year, 50% or more of your business income is derived from providing building and construction services
• in the financial year immediately before the current financial year, 50% or more of your business income was derived from providing building and construction services.

Details you need to report

For each contractor, you need to report the following details each financial year:

Payments you need to report

You will need to report payments you make to contractors for building and construction services.

Building and construction services include any of the activities listed below if they are performed on, or in relation to, any part of a building, structure, works, surface or sub-surface:

For a list of occupations and work activities that qualify as building and construction services, see http://www.ato.gov.au/businesses/content.aspx?doc=/content/00313486.htm further information.

Contractors who pay other contractors for building and construction services may also be required to report if they are carrying on a business that is primarily in the building and construction

When to report

The Taxable payments annual report is due 21 July each year.

The first Taxable payments annual report is due 21 July 2013 for payments made in the 2012-13 financial year. In this first year, if you lodge your business activity statements quarterly, you may lodge by 28 July 2013.

You are not required to report on payments where the invoices are for materials only, such as building supplies and materials.

Unpaid invoices as at 30 June each year

Do not report any unpaid invoices as at 30 June each year. For example, if you receive an invoice in June 2012, but you do not pay that invoice until sometime in July 2012, you report that payment in the 2012-13 Taxable payments annual report.

Pay as you go withholding payments

You do not report payments that are required to be reported in a Pay as you go (PAYG) withholding payment summary annual report or a Pay as you go (PAYG) withholding where ABN not quoted annual report - for example, payments to:

• Employees
• workers engaged under a voluntary agreement to withhold
• workers engaged under a labour hire or on-hire arrangement
• contractors who do not quote an ABN*.

*Where an ABN is not provided, the payer must withhold under the existing pay as you go withholding arrangements. For ease of reporting, if there are instances of no-ABN withholding, details may be reported in the new Taxable payments annual report instead of the Pay as you go (PAYG) withholding where ABN not quoted annual report.

Payments for private and domestic projects

You will not need to report if you are a home owner making payments to contractors for building and construction services, for example if you are building or renovating your own home.

Information for contractors within the building and construction industry

If you are a contractor and you do not pay other contractors, then you do not need to do anything. From 1 July 2012, businesses that are primarily in the building and construction industry that pay you for building and construction services will be required to report these payments to the ATO each year. The information reported will be used for data matching to detect those contractors who may not have included all their income or lodged tax returns.