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  • Property and Construction Forum key messages 22 October 2019


    Chair, Scott Walker opened the meeting with an acknowledgment of country. He introduced Tim Dyce, Deputy Commissioner who highlighted the significance of the construction industry and the compliance benefits of continuing the forum.

    Key Note: ATO measuring tax performance including tax gap

    The latest findings from the ATO Tax Performance and Tax Gap research program were presented.

    The tax gap is the difference between what we collect and what is collectible under the law. It is inherently difficult to quantify what we can't see and we strive to make credible and reliable estimates with a degree of certainty.

    So far, we have released 12 tax gaps, the most recent the small business tax gap and as we gather and publish more information the performance story emerges.

    The Small Business tax gap is the largest so far at $11.1 billion. Tax gaps provide insight into taxpayer behaviour e.g. over claiming of motor vehicle and home office expenses as well as incorrect estimates of income and expenses.

    Most small businesses are trying to do the right thing and a small percentage of entities are responsible for a large gap.

    Introducing the Australian Competition and Consumer Commission's (ACCC) Commercial Construction Unit

    The ACCCExternal Link enforces the Competition and Consumer Act 2010External Link

    The Commercial Construction Unit deals only with construction industry activities ranging from high rise building to government projects.

    The unit adopts a risk based approach to addressing a broad range of issues including competition and consumers; the conduct of two or more people; and anti-competitive arrangements.

    Anti-competitive agreements include cartel and unilateral conduct.

    Most matters are referred by industry or the Australian Building and Construction CommissionExternal Link

    The ACCC have power to impose high penalties and proceed with criminal prosecution. As the legal process is protracted the unit proceeds only with cases involving a significant level of harm.

    The ACCC uses the Whispli Platform to communicate anonymously with reporters and whistle-blowers. To access, search 'construction industry' on the ACCC website where you will find a link to anonymously report conductExternal Link.

    Superannuation developments – SMSF Draft Bulletin and Annual Leave loading SG issues

    SMSF bulletin (SMSF2019/D1) currently in draft form (not released), steps through our day-to-day concerns and is intended to highlight potential minefields in the management of an SMSF.

    The intent of the Bulletin is to raise awareness prior to a trustee entering into an arrangement and is not intended to be a one stop manual for SMSFs and property development. The product is designed for advisors to SMSF trustees.

    In a second matter, the ATO view on annual leave loading and the calculation of Super Guarantee is contained in Superannuation Guarantee Ruling, Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' SGR 2009/2. Although the view has not changed since 2009 our web content persisted to communicate the ''old view'. We recently changed the web content and the current content provides a compliance approach in recognition of the previously unclear position.

    Why are correct ABNs important? How are we supporting head contractors to ensure ABNs are current and correct?

    For the 2018 reporting year, 2.97% of payments to contractors reportable under the Taxable Payment Reporting System were made to contractors who did not have a valid ABN. As a result $99 million of 'no withholding' and collectible GST was not paid by these contractors to the ATO. These same contractors may also be claiming input tax credits further draining the tax revenue.

    The Head Contractor Dashboard provides the head contractor with Taxable Payments Annual Report data that shows a comparison of their subcontractor tax behaviour to those of similar sized entities. We explain the risks to Head Contractors of non-compliant subcontractors, such as phoenix behaviour and potential insolvency.

    When we first started engaging with Head Contractors as part of this project, we found that many of them did not do regular ABNs checks after initial engagement. This has changed over the life of the project and now many more contractors are doing regular ABN LookupExternal Link checks for ABN accuracy. The benefits of this are beginning to flow.

    From 1 July  2019 deductions for payments to subcontractors with no ABN will be denied.

    We have also engaged with software developers to negotiate the inclusion of 'ABN lookup' into commonly used software.

    Building and Construction Market Prospects to 2023–24

    In 2019, 1 in 11 jobs were in construction which comprises 11.4% of full time jobs, construction being the largest full time sector. There are 380,000 construction firms with the vast majority classified as small, with less than 19 employees.

    Master Builders AustraliaExternal Link predicts that residential construction is reversing up to 2021, commercial is doing well and engineering has the most positive outlook.

    Home renovation and new building do not work in tandem and renovation has dropped. Engineering, mostly driven by road and rail infrastructure projects will peak in 2021–22.

    The future of the Forum

    The group discussed whether the forum should continue into the future and possible improvements. The following aspects were suggested:

    • format of the meeting should to be clear for example, face to face or video
    • forum members are encouraged to suggest agenda topics and provide presentations
    • additional members should be invited
    • review the charter to clarify the objectives of the group
    • establish effectiveness measures.

    The current forum has a focus on construction - consider adding more property content and representatives.

    What is current for GST?

    GST at Settlement is going well. No penalties for non-compliance have been imposed at this stage although we are currently considering two cases.

    An issue around 'unimproved land' where there is ambiguity around valuations is currently being litigated. We are considering an administrative 'safe harbour'.

    'Development Leases' are an ongoing issue. We released a relevant taxpayer alert in 2018. We identified a promoter who was promoting a development arrangement. A promoter penalty review is underway. We recommend parties to an arrangement lodge their ruling request jointly. We will be publishing further advice in the future.

    A Practitioner perspective on P&C

    We discussed how to obtain a robust valuation and the traps to avoid. Valuers need to be willing to say when they cannot come up with a valuation because of insufficient information and we should be sceptical around provided valuations as a lot can go wrong. The ATO Valuation Guide is very useful.

    Valuations are important in restructures, real property and GST, CGT, transfer pricing and in arm's length considerations.

    Good lawyers can change land values and characteristics. There is considerable legal uncertainty in valuation which impacts many areas of Income Tax, Superannuation and GST law. More guidance and test cases need to be undertaken in this area.

    An example was shown of how to turn a land asset into a capital asset through the granting of a long term lease which is then sold and an example of how property development activities on revenue account may be mistaken as capital realisation activities.

      Last modified: 22 May 2020QC 62703