As a business owner, you’ve got a lot of reporting responsibilities, especially when it comes to the Australian Tax Office. The ATO is constantly increasing its data matching capabilities, and some of that relies on businesses providing them with information. One of the newer responsibilities you have is the Taxable Payments Annual Report (TPAR).
The TPAR is all about reporting taxable payments you’ve made to contractors throughout the financial year for relevant services. So, as you get ready for the end of financial year, it’s a good idea to learn more about TPAR and how it affects your business.
What is TPAR (Taxable Payments Annual Report)?
TPAR is an industry-specific reporting requirement for businesses who pay contractors for relevant services. Essentially, if you pay contractors, you need to report how much you’ve paid, and to whom. This is a relatively new requirement for businesses, but it relates to the increasing practice of businesses using contractors rather than employing full-time staff.
Why is the TPAR important?
The ATO needs this information to assist with their data matching processes. When you report the payments you’ve made to contractors, the ATO can then check to ensure the contractor has declared the income on their tax return. It’s important because it helps the ATO find out if contractors are declaring all of their income, failing to lodge tax returns or quoting inaccurate ABNs. They can also determine whether contractors should be registered for GST, if they’re not already.
The implementation of Single Touch Payroll (STP) has made it much easier for the ATO to access income information for employees, but they require your input for contractor payments.
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Which industries need to submit a TPAR?
Not every business needs to complete a TPAR each year, as it’s an industry-specific requirement. The types of businesses required to submit a TPAR include:
- Courier services
- Road freight services
- Building and construction
- IT services
- Security, investigation and surveillance services
In addition, government agencies must report taxable payments made to third parties for providing services.
It’s important to note that you need to complete a TPAR if you provide any of the above services, regardless of whether it’s your main income or not. For example, you may derive most of your income from retail sales, but you also provide IT services. You still need to complete a TPAR.
What is a ‘relevant service’?
It’s important to clarify what constitutes a ‘relevant service’. When it comes to determining which taxable payments you need to report, the guidelines are quite clear. A relevant service is one that’s in relation to carrying out your business. Payments include those made to contractors, sub-contractors, consultants or companies.
A relevant service is usually one that a contractor does on your behalf. For example, you run a courier company and you employ a contractor to perform courier duties 3 days a week. These payments need to be reported in your TPAR.
If your business pays a contractor to come and fix the toilets at your business premises, this is not considered a relevant service because the work is not done on your behalf. Rather, this is an operating expense.
Items that don’t need to be reported
Not every payment you make to a contractor needs to be reported. There are a few exceptions, which are detailed below:
1. Payment for materials
If your contractor invoices separately for labour and materials, you only need to report the labour costs. If they issue a combined invoice, you’re required to report the full amount.
2. Incidental labour
If the labour costs are incidental to the supply of materials, you can exclude the labour cost.
3. Unpaid invoices as at 30 June
If you’ve got invoices outstanding at 30 June each year, you don’t need to include these in your TPAR. Only report in the financial year you actually make the payment.
4. PAYG payments
If you’ve reported payment such as wages or labour hire services through STP, you don’t need to report them in your TPAR.
5. Contractors with no quoted ABN
If no ABN is quoted, withhold under the PAYG withholding arrangements. Report the amounts withheld in your TPAR, or in the PAYG withholding where ABN is not quoted – annual report.
6. Payments within consolidated groups
If you make payments to a contractor who is part of the same consolidated group for tax purposes, you don’t need to report.
7. Payments for private work
If you’re not a business, you don’t need to report. For example, a homeowner builder may pay contractors for work, but this doesn’t need to be reported.
What are the reporting requirements for TPAR reports?
You’re required to report payments with a TPAR if you have an ABN, and you’ve made payments to contractors for relevant services. Also, you need to be operating in one of the industries we listed above.
What details need to be included in a TPAR report?
When getting your TPAR reporting ready, it’s important you have all the relevant details required by the ATO. Most of these details should appear on the tax invoice your contractor provides.
- Total amount paid
- GST paid (if applicable)
If your contractor doesn’t provide you with this information, you’re entitled to ask for a proper tax invoice that includes all of the necessary details.
How does TPAR lodgement work?
TPAR lodgement is actually quite simple, although it may take a bit of time to prepare the information you need. Most modern accounting software includes TPAR reporting, so generating the reports are easy. Of course, without this, you’ll have a bit of work to do gathering all your invoices together. This is why we strongly recommend using accounting software, no matter how small your business.
If your accounting software allows, you can usually lodge directly from there. If not, you can do it just as easily through the ATO’s online portal. There is also a paper form you can use, if you like to do things that way.
The due date for submitting your TPAR to the ATO is 28 August. So, make sure you get your TPAR ready on time, because you can be subject to penalties for late lodgement.