There are a number of things you can do to ensure you get your tax and super obligations right when dealing with suppliers and contractors.
Cash is income too
It’s well known that many tradies offer discounts for cash, but cash is no longer invisible to us.
We collect data from a number of sources, including banks, other government agencies and industry suppliers. We use this information in our risk models and compare it against what has been reported to us.
We also get many reports from the public, relatives, employees, and colleagues about being offered cash deals or knowing others who have because they are concerned about tax evasion.
When to register for GST
You need to register for GST if you run a business or enterprise and your GST turnover is $75,000 or more ($150,000 or more for non-profit organisations) over a 12–month period.
GST property decision tool
You can use the GST property decision tool to work out if GST applies to your property sales. It can be used to determine GST on the sale, lease or purchase of real property (including vacant land, residential and commercial premises).
Super is money you pay workers for their retirement.
It is important that your eligible employees are paid the correct amount of super. Our Super guarantee contributions calculator can help you work out how much super you need to pay.
You must pay your eligible employees super on time, in full and to the correct fund. If you do not meet your super guarantee (SG) obligations, you will need to lodge an SG charge statement and are liable for the super guarantee charge (SGC).
Help with lodging
To save you time and to help you get your tax return right, pre-fill information is automatically loaded into your tax return and can be accessed via myTax or your registered tax agent. This is usually available by early August.
To avoid penalties you need to lodge and pay on time. We understand that there may be times when you're unable to lodge or pay by the due date. If you're having difficulty, we can help. Contact us as soon as possible before the due date and we will work with you to find a solution.
If your business hires contractors you have additional requirements, including the Taxable payments annual report (TPAR) and documents you need to obtain if you want to tender for certain government contracts. We have also identified a number of compliance risks and checks you should do to minimise your compliance risks and improve your tax governance.
If you hire workers, and you are unsure if they are an employee or contractor, use our employee or contractor information pages to work out their status for tax and super purposes.
Taxable payments annual report
Businesses who provide taxable payment reporting system (TPRS) services need to report the total payments they make to each contractor for those services each year. Businesses need to report these payments to us on the TPAR by 28 August each year.
With the introduction of TPAR in 2012, we can now identify sub-contractors who haven’t met their tax obligations.
Regardless of your situation, we want to work with you to progress your matter quickly and to do this we need the right information. We ask that you:
- talk to us as early as possible so that we can understand your circumstances
- maintain open and regular discussions on the facts and issues
- work with us to set timeframes for supplying information.
From 1 July 2019, tenderers and their first tier sub-contractors applying for Commonwealth Government contracts over $4 million (including GST) must obtain a statement of tax record (STR) showing satisfactory engagement with the tax system.
If you hire workers, such as sub-contractors, you may be exposed to compliance risk through your sub-contractors. If your sub-contractors are not meeting their obligations, this can also affect you.
We are committed to helping you reduce your compliance risks and improve your tax governance. The following contains a quick overview of how you can reduce your exposure to compliance risks from your sub-contractors.
Checks and considerations
Before hiring workers in your business, there are things you should check and consider before you enter into a work agreement or contract, including:
- Hiring workers for the first time – Checklist
- Entering into a new business relationshipExternal Link
Sub-contractors and ABN/GST registration
If you employ contractors, ensure your contracts clearly identify who you are doing business with. You should only deal with contractors and sub-contractors who have an active ABN and are correctly registered for GST.
To confirm your sub-contractors' identities, we use the details from your TPR such as:
- Australian Business Number (ABN)
- legal name
- trading name
- entity or business name
- entity type
- business address and GST registration status against their tax invoice and ABN Lookup.
If you paid GST inclusive payments to sub-contractors who weren’t registered for GST (when they were obliged to be), you may have to repay any input tax credits you claimed. It may also impact on whether you can claim a deduction for the payment made to the sub-contractor as payments made to a sub-contractor who has not provided a valid ABN are not deductible.
Registering for GST means you can generally claim GST credits. You should also ensure your suppliers are registered for GST. If not, you may be unable to claim GST credits.
Ensure all information you provide to us about your contractors and sub-contractors (including name and ABN) is complete and up-to-date.
You can use the ABN Lookup toolExternal Link to confirm the identity details of your sub-contractors and their GST status (this tool is also available on the ATO app). You may have software that can do this for you automatically. You may want to consider updating your software with any changes.
Sub-contractors and their tax lodgments
Sub-contractors who are not meeting their taxation obligations may also be behind on other administration tasks, for example, insurance and licensing which could affect the delivery of your projects.
You can include a clause in your contracts that stipulates that your sub-contractors have their personal and business tax compliance up-to date. It's good practice to regularly ask your sub-contractors for evidence of their tax compliance, for example, through ATO business portal printouts or statutory declarations attesting to their compliance.
You can remind your sub-contractors that they are required to lodge their activity statements and tax returns on time. It’s important that they manage their tax debts, paying in full and by the due date.
Sub-contractors and tax debt
Sub-contractors may face cash flow difficulties from time to time and this may impact their ability to complete your projects.
If they can't pay a tax bill by the due date, they may be able to set up a payment plan to pay it by instalments. We have a range of tools, payment and self-serve options on our website at Help with paying.
Even if they can’t pay right now, it's important that you encourage them talk to us so we can help before their debt escalates.
If your sub-contractors are unwilling to work with us to manage their debt, we may take firmer action. This could include sending you a garnishee notice requiring you to send some of the sub-contractor's payment to us to reduce their debt. This is another reason to remind sub-contractors to ensure that they are meeting their tax obligations.
Illegal phoenix activity
Illegal phoenix activity is when a company is deliberately liquidated, wound up or abandoned to defeat creditors, leaving its debts behind. Its assets or employees are shifted to the controllers or to a new entity that begins trading, often under a similar name.
Illegal phoenix activity isn't just a tax issue – it costs the entire community. It can mean that:
- project and service timelines are disrupted
- creditors' debts go unpaid
- employees miss out on wages, entitlements and superannuation
- the government loses revenue to fund essential community services
- illegal phoenix operators can undercut competitors and gain an unfair competitive advantage over other businesses.
Some signs that a business may be involved in illegal phoenix activity include:
- offering significantly lower quotes compared to other businesses
- directors of the company have been involved with liquidated entities before
- a change of directors, name of the company or both – but managers and staff remain the same
- having the company request payments go to a new entity or asking for payments to go to another company
- the business doesn't have a valid ABN.
You can take some simple checks to help protect your business from illegal phoenix operators, including the following.
- Conduct an online search on the company or director’s name to uncover relevant information relating to them, such as negative media reports.
- Do regular credit checks to ensure they're still financially viable.
- Ask your sub-contractor for references and details of previous work they have completed.
- Ask if any directors, office holders, major shareholders, nominees, persons of influence or any intended business partner ever
- become bankrupt or entered into a debt agreement under Part IX of the Bankruptcy Act 1966?
- entered into a composition, deed of arrangement or deed of assignment under Part X of the Bankruptcy Act 1966?
- been a director, secretary, shareholder or person in a position to control or substantially influence a company’s conduct or affairs where it is within 12 months of
- a company being placed into receivership
- official administration
- under a legal deed of company arrangement
- in liquidation or wound up for the benefit of creditors.
If the sub-contractor is a business or company, there are other checks you can do, including:
- searching for their ABN on the Australian Business RegisterExternal Link
- asking for proof that the company has registered for, and paid, their tax obligations
- finding free information about companies, business names and licences from the Search ASIC registersExternal Link on their website
- searching ASIC’s banned and disqualified registerExternal Link for information on people or organisations
- finding out if the person is bankrupt by searching the Australian Financial Security Authority’s Bankruptcy Register SearchExternal Link (BRS)
- if the client is a company, checking if they’ve gone into liquidation using ASIC’s Published notices searchExternal Link
- asking your accountant/advisor to run a credit check on the person under other possible business structures, such as a
- sole trader.
Sub-contractors and superannuation
Sub-contractors who fail to meet their employee obligations are operating illegally and taking advantage of the workers you are relying on to complete your projects. This could result in workers leaving their employer, in turn delaying delivery of your project.
You can help sub-contractors by making sure they understand their obligation to pay superannuation for their workers.
Superannuation is an entitlement for workers on your projects and sites. Failure of their employer (your sub-contractor) to pay this presents a high reputational risk for your business.
We have a range of tools and online services to help your sub-contractors get it right.
We offer a range of tools and services to help make it easier for you and your contractors to get tax and super right. It's part of our commitment to improving your tax and super experience.
We encourage business and contractors to work together and ensure they understand their obligations.