On Monday Mon 23.7.2018, Treasury released exposure draft legislation, to further expand the taxable payment reporting system (Reporting System), which is in Div 396 of the TAA 1953. This measure was previously announced in the 2018-19 Budget as part of other measures aimed at tackling the black economy.
The ‘Black Economy Taskforce’s Interim Report,it recommended that this Reporting System be extended to ‘courier’ and ‘cleaning services’ and on 7 February 2018, the Government introduced the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, to make those amendments.
In the Taskforce’s Final Report, it also recommended extending the Reporting System to the ‘security, road freight and IT’ industries, which the Draft EM describes as ‘high risk’ (presumably because they are prone to arrangements, that are not actually effective to avoid the PAYG withholding system, or there are many entities that don’t go on to report all of their income in their tax returns, or both). The draft Treasury Laws Amendment (Black Economy Taskforce Measures No 2) Bill 2018, is designed to give effect to this further extension of the Reporting System.
If finalised in the draft form, this Bill would expand the Reporting System to:
- an entity that makes a*supply of a courier, service or a road freight service and has an *ABN’;
- an entity that makes a*supply of a security, investigation or surveillance service and has an *ABN; and
- an entity that makes a*supply of an information technology service and has an *ABN.
An affected entity has to report, to the ATO, the ‘consideration’ (per the GST law),that it has given for such a supply, unless:
- Division 12 of the TAA 1953 (Schedule 1) already applies to require the payer to withhold PAYG amounts (and remit them to the Commissioner) on account of any tax those recipients (suppliers) have to pay, on their income; or
- Those entities are members of the same consolidated group or Multiple Entry Consolidated group.
The rationale for these exclusions are not explained, other than to say that they are consistent with the scope of the existing reporting requirements.
This wording, of the Div 12 PAYG withholding exclusion, does not appear to be effective, to achieve the objects of this legislation (at least to some extent). Technically, if Div 12 did apply, but the payer was not, in fact, withholding, there would be no requirement to report that payment, and those recipients (of the payments) might also be failing to disclose that income in their tax return. To be effective, the Bill should be drawn in terms of excluding only payments where PAYG withholding has actually been made.
The Reporting System is a ‘transparency’ only system and only requires the payments in affected industries, to be reported to the ATO for monitoring and potential audit.
The Reporting System, first applied to the building and construction industry.
DATE OF EFECT: 1 July 2019.
COMMENTS are due by 17 August 2018
FJM 13.8.18
[Treasury website: Consultation Page, Draft Bill, Draft EM; LTN 139, 23/7/18; Tax Month – July 2018]
Comprehension questions (answers available)
- Did the Task force recommend extending the Reporting System to the ‘courier and cleaning services’ industries in its Interim Report and to the ‘security, road freight and IT’ industries in its Final Report?
- Did the Government introduce the No.1 Measures Bill, to extend the Reporting System in the way suggested by the Taskforce’s Interim Report, whilst this draft No. 2 Bill would implement the extra recommendations in the Taskforce’s Final Report?
- Does the Reporting System also require the payer to withhold tax from payments?
- Is the purpose of the Div 396 Reporting System to tackle ‘sham contracting’ and general failure to report all income, by participants in the affected industries?
- Does the wording of one of the exclusions need to be changed to achieve the Div 396 objectives?
