Subcontractor Agreements designed to combat changes in legislation made by the Australian Taxation Office , which now requires certain Industries who use Subcontractors to have formal Agreements in place to avoid the potential liability, and of course the 10’s if not 100’s of thousands of dollars that go along with that liability.
So today we are going to discuss,
- What industries are affected by the ATO’s changes in legislation,
- What are the potential costs of not having Subcontractor Agreements in place.
- What steps you can take to avoid 10’s if not 100’s of thousands of dollars of potential liability
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Now before we get started, we firmly believe that the only way to appreciate and really understand new information is to review it a few times and discuss it with friends, family, work colleagues, basically anyone whose opinion you really trust.
Now you may or may not be aware that in 2018 and 2019 the ATO introduced TPAR or Taxable Payments Annual Report. It requires all businesses in the
- Building and Construction industry,
- Commercial Cleaning Industry,
- Courier and Transport industry,
- IT Services,
- and the Security Industry
to file annual reports detailing any payment made to Subcontractors in the previous 12 months.
I imagine most business owners are aware of their TPAR requirement, but just in case to your accountant hasn’t made you aware, or you have only just started using Subcontractors, let’s quickly pull up the ATO website and have a look.
So, as it details, if you are in the,
- Building and construction industry,
- Cleaning Industry,
- Provide Courier or Road Freight Services,
- Information Technology or
- Security Services
you are required by law to submit a Taxable Payments Annual Report.
Now I would suggest that the Building and Construction Industry uses subcontractors and therefor require Subcontractors Agreements but all the rest being cleaning, courier and freight, IT Services and Security don’t use Subcontractors but instead use Independent Contractors.
Now I hear you say, yep Paul I see that businesses in those industries need to submit Annual Payment Reports but what’s that got to do with Subcontractor and Independent Contractors Agreements.
Well here we go, and this is the reason why now, more than ever, you should ensure that your business as a formal agreement with your Subcontractors or Independent Contractors.
Contractors reminded to declare $172 Billion, with a B, of Income.
The Australian Taxation Office (ATO) has revealed it is using data from its Taxable Payments Reporting System (TPRS) to ensure that more than $172 billion of payments to contractors have been properly declared.
Businesses that pay contractors in the courier, cleaning, building and construction, road freight, information technology, security, investigation, or surveillance services industries are required to notify the ATO of payments made to contractors annually.
“More than 158,000 businesses have now reported all payments made to contractors in the 2019–20 year to us. This data, combined with our sophisticated data and analytics capability, means our field of vision to detect unreported income is better than ever.”
The ATO is using the data to proactively contact contractors to make sure they haven’t forgotten to declare the income reported through the TPRS.
And don’t think just because you’re not in the declared industries that you don’t have to worry about having an Subcontractor Agreement.
Look at this
The ATO encourages the community to report suspected tax evasion by: Competing a Tip Off Form
So, it doesn’t matter what industry you are in. You need to formalise your relationship with your Subcontractors.
WOW – an actual Tip Off Form that you download from the ATO Website.
I will of course include a link below so that you can go online and read the whole article but here is my point.
What do you think happens when one of your Subcontractors, who haven’t paid their tax on a 172 Billion, is contacted by the ATO (ATO doing exactly what you just read) and asked for a please explain?
I don’t think it will take long before you hear the words, Oh I thought I was an employee, or well I have been thinking about it, and I would probably class myself as an employee rather than a Subcontractor.
Who do you think is going to be the next business on their call list?
Actually, one of my clients had a classic example of this happening not that long ago. He was a Civil Contractor who owned his own earthmoving equipment, Bulldozers, Trucks, Trailers etc. but he also used outside Subcontractors. These were businesses who owned their own Trucks, Trailers, Excavators etc who he would Subcontract out work to when he had the need.
Now it wasn’t the ATO that actually came knocking, it was actually Work Cover. He received a letter in the mail saying, hey we don’t think that these Subcontractors of yours are actually Subcontractors, (and here is the point) we class them as Employees, and here is an invoice for $250 000 for the last 5 years of Work Cover payments.
The problem is, how do you fight a bureaucracy like that. You can say that their Subcontractors as much as you like, but unless you have a Formal Agreement in place, there isn’t much you can do.
So, it can actually in fact, can come at you from a couple of different directions, which is why we always recommend to our clients, get a Formal 12 month Subcontractor Agreement in place, which you signed every twelve months. It clearly formalises the relationship and establishes a clear divide between your business, and that of your Subcontracts.
After all it doesn’t take a rocket scientist to realise that with the ATO chasing taxation owed on 172 Billion dollars and remember that’s just for last year. It will more than likely be the same this year, and next year and the year after.
So where do you go from here,
Now, I understand you might have a couple of questions, for that matter you probably have heaps of questions. So what I’m going to ask you to do is to click the below link called Request a Chat, fill in any additional information and will give you a call asap.
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And there is just one more thing I am going to ask you to do, and that is to share this video on your various social Media Platforms. By making more individuals and businesses aware of the potential liability associated with Subcontractors, we can start changing the way businesses operate, which is only going to work out better for everyone.
But hay that’s all from me, thanks for taking the time to read this information, our sincere hope is that you have gained a little more knowledge to help protect your business in the last few minutes. I hope you have a Great Day, and please stay safe.
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