Reportable payments exposure draft regulations

Today, 14 December 2011, the Treasury has released exposure draft Regulations and explanatory material relating to the Government’s 2011-12 Budget measure, Tax compliance – reporting taxable payments.

The draft regulations seek to introduce a reporting regime requiring certain businesses in the building and construction industry to report annually to the Australian Taxation Office the details of payments made to contractors in the building and construction industry

The Regulations are proposed to commence on 1 July 2012.  The closing date for submissions on the exposure draft is  20 January 2012.

It appears that compliance with the regulations will involve difficulties for those businesses at the “margin” – e.g., those payers

1. that may not “derive” over 50% of their “business” income from the prescribed building and constructions services (or may not be able to predict that it will in the current financial year);
2. make acquisitions of services for private, general (or other) business purposes, rather than in the course of their building and construction business.

Given that this information will need to be identified and “coded” for retrieval each quarter in the accounts of the payer, it appears that additional work will have to be done to the IT systems of payers and the processes and procedures for input of accounts payable and purchases.

I have not been able to identify any indemnity for a payer that mistakenly discloses confidential information under these proposals – e.g., if the payer does not fall within a requirement to report the particular payment.

Once specified in regulations, a payer must report to the Commissioner within 21 days after the end of each quarter:

1. the name and ABN of each supplier; and
2. the total of the Division 405 payments made in the quarter.

The circumstances in which the proposed regulations are to apply to payments are:

(a) the purchaser is a business that is primarily in the building and construction industry;

(b) both the supplier and the purchaser have an ABN;

(c) the supplier supplies to the purchaser:

(i) building and construction services; or

(ii) a combination of goods and building and construction services, if the supply of the services is not incidental to the supply of the goods.

The regulations do not apply to payments within consolidated groups (but will apply for payments within GST groups?) nor to “withholding payments”.

A purchaser is taken to be a business that is primarily in the building and construction industry only if:

(a) in the current financial year, more than 50% of the purchaser’s business income is derived from providing building and construction services; or

(b) in at least one of the 2 financial years immediately preceding the current financial year, more than 50% of the purchaser’s business income was derived from providing building and construction services.

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

(a) alteration;

(b) assembly;

(c) construction;

(d) demolition;

(e) design;

(f) destruction;

(g) dismantling;

(h) erection;

(i) excavation;

(j) finishing;

(k) improvement;

(l) installation;

(m) maintenance;

(n) management of building and construction services;

(o) modification;

(p) organisation of building and construction services;

(q) removal;

(r) repair;

(s) site preparation.