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  • IT services

    If you're running a business providing information technology (IT) services (even if it's only part of the services you provide), you must lodge a Taxable payments annual report (TPAR) for each financial year that you:

    • have an Australian business number (ABN), and
    • make any payments to contractors for IT services they provide on your behalf.

    If your business provides mixed services, not just IT services, you may need to lodge a TPAR if the payments you receive for IT services make up 10% or more of your total GST turnover.

    You must reassess whether you need to lodge a TPAR each year.

    Your first TPAR for payments made to contractors from 1 July 2019 to 30 June 2020, will be due by 28 August 2020.

    To make it easier to complete your TPAR, you should check the way you currently record information about your payments to contractors.

    On this page:

    See also:

    What are IT services?

    ‘IT services’ include the provision of expertise in the field of information technologies such as writing, modifying, testing or supporting software to meet the needs of a client.

    IT services may be performed on site, or remotely through the internet. They include services that support or modify the operation of hardware or software, such as planning and designing computer systems to integrate computer hardware, software and communication technologies.

    Simply using IT hardware or software in your business to provide a service (other than an IT service) doesn't make your business a provider of IT services. For example, you would not be 'providing an IT service' just because your business uses software to provide an accounting, project management, or word processing service as part of running your business.

    Some examples of IT services include:

    • computer facilities management
    • computer hardware consulting
    • computer network systems design and integration
    • computer programming
    • computer software consulting
    • internet and web design consulting
    • IT consulting
    • software development
    • software installation
    • software simulation and testing
    • systems analysis
    • technical support.

    Examples of activities that are not IT services include:

    • mass producing computer software (that is, the reproduction of recorded media)
    • leasing or hiring computers or other data processing equipment (we consider this to be ‘goods and equipment rental and hiring services'). However, if the seller or lessor of the hardware or software modifies the hardware or software for the purchaser or lessee, or develops specific software for them, then those services are an IT service.
    • providing data processing services or computer data storage and retrieval services (we consider this to be ‘data processing, web hosting and electronic information storage services’)
    • installing computer cables (we consider this to be ‘electrical services’).

    Businesses providing mixed services

    If IT services are only part of the services your business provides, you will need to work out what percentage of the payments you receive are for IT services each financial year to determine if you need to lodge a TPAR.

    If the total payments you receive for IT services are:

    • 10% or more of your GST turnover – you must lodge a TPAR
    • less than 10% of your GST turnover – you don't need to lodge a TPAR.

    You can choose to lodge a TPAR even if you think you don't need to. For example, if you're not sure if your payments for IT services will be less than 10% of your GST turnover for the financial year, you should record the payments you make to contractors anyway. You can choose to lodge a TPAR even if you're under the 10% threshold.

    To work out if you need to lodge a TPAR, use the following three steps:

    Step 1: Calculate your total payments received for IT services

    Add up all the payments your business received for IT services during the financial year, regardless of whether an employee or a contractor performed those services on your behalf.

    Don't include payments:

    • you make to contractors for providing these services on your behalf
    • where the IT services provided are only ancillary or incidental to the goods or other services your business provides.

    Step 2: Calculate your current or projected GST turnover

    If you've been operating your business for:

    • the full financial year – use your current GST turnover for the year
    • less than 12 months of the financial year – you must use your projected GST turnover by working out what your GST turnover will be for the next full financial year.

    Your GST turnover is your gross business income (not your profit) excluding any:

    • GST you included in sales to your customers
    • sales that are not for payment and are not taxable
    • sales not connected with an enterprise you run
    • input-taxed sales you make
    • sales not connected with Australia.

    Step 3: Calculate what percent of your GST turnover is from IT services

    You can calculate this percentage by using the following formula each financial year:

    Total payments received for IT services × 100 divided by Current or projected GST turnover

    If 10% or more of your GST turnover for the financial year is from IT services and you've also made payments to contractors for IT services during the year, you must lodge a TPAR.

    Examples

    The following examples demonstrate the meaning of 'providing IT services' and whether or not a business providing IT services needs to lodge a TPAR.

    Example: Manufacturing and selling computer peripherals and associated software

    Compass Drives Pty Ltd has an ABN and manufactures USB thumb drives and hard drives. Compass sells the USB drives to retail stores, which then sell them to consumers.

    The manufacture and supply of computer hardware and peripherals for consumers, such as USB drives, is not supplying an IT service.

    Compass Drives, therefore, doesn't have to report (on a TPAR) any payments made to contractors who manufacture the USB drives on its behalf.

    Compass Drives also engages contractors to write USB drive optimisation software, which Compass Drives then sells separately via its website and bundles in with its high-end products.

    The software being sold by Compass Drives is a product rather than a service being made available to consumers generally. It is not designed for, or in response to, the needs of a client.

    Therefore, Compass Drives isn't providing an IT service when it develops this software and isn't required to report (on a TPAR) any payments it may make to contractors who develop this software on its behalf.

    Example: A company designing local area networks for large businesses

    Whiz Networking Pty Ltd has an ABN and provides the following services to its clients:

    • design and implementation of local area networks and intranets
    • supply and installation of network hardware and associated cables
    • testing services
    • ongoing technical support.

    Whiz Networking uses contractors to install and test the network hardware, develop, implement and test the intranet, and provide ongoing technical support.

    The design, development, installation and testing of local area networks and intranets is an IT service that Whiz Networking provides to its clients.

    The ongoing technical support that Whiz Networking provides is also an IT service being provided to clients.

    At the end of the financial year, if the total payments Whiz Networking received for IT services is 10% or more of its current or projected GST turnover, it will need to report the payments it makes to contractors for IT services in a TPAR.

    Whiz Networking also contracts a company to provide network hardware to its clients on its behalf. The supply of the hardware is not considered to be 'providing an IT service', therefore Whiz Networking isn't required to report payments it makes to this company on the TPAR.

    Example: An IT company using both employees and contractors

    Goodtime Software Pty Ltd has an ABN and develops accounting software for clients. An accounting firm engages Goodtime to write an accounting software suite tailored to the specific needs of the firm. Goodtime develops this suite for the accounting firm and provides ongoing software patches to fix bugs as they are discovered.

    Goodtime is considered to be 'providing an IT service' as the software has been developed for the client based on the outcome for which they contracted with Goodtime. The software was not produced for general sale or distribution. The writing of software patches for this accounting software is also considered to be 'providing an IT service', as the patch was written to address issues in the accounting software specifically developed for the client.

    Goodtime has employees to develop the accounting software and uses contractors to write patches as required.

    Goodtime Software Pty Ltd has been operating for the full financial year.

    At the end of the financial year, the total payments Goodtime received for IT services is 10% or more of its current GST turnover, meaning Goodtime must lodge a TPAR.

    Goodtime:

    • doesn't report the payments it makes to its employees as those payments are reported in its pay as you go (PAYG) withholding payment summary annual report
    • needs to report (on the TPAR) payments it makes to its contractors writing software patches as they are providing an IT service on its behalf.
    End of example

    Authorised by the Australian Government, Canberra 

    Last modified: 20 Dec 2018QC 57697