Senate

Revised Explanatory Memorandum

(Circulated by authority of the Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services, Minister for Women, Minister Assisting the Prime Minister for the Public Service)

Chapter 2 - Third party reporting

Outline of chapter

2.1 Schedule 2 to this Bill amends the TAA 1953 to require entities providing courier or cleaning services that have an ABN to report to the ATO information about transactions that involve engaging other entities to undertake those courier or cleaning services for them.

2.2 All legislative references in this Chapter are to the TAA 1953 unless otherwise stated.

Context of amendments

2.1 The black economy is a significant, complex and growing economic and social problem. In 2012, the Australian Bureau of Statistics estimated that the black economy in Australia could be as large as 1.5 per cent of Australia's gross domestic product, or around $25 billion.

2.2 In response to this problem, the Government established the Black Economy Taskforce, chaired by Mr Michael Andrew AO. In its Interim Report the Taskforce noted that a range of trends, vulnerabilities and other considerations suggest that the black economy could be larger today.

2.3 In May 2017, the Government released the Black Economy Taskforce's Interim Report, which contained a number of initial recommendations based on the experience of foreign jurisdictions, extensive consultation with stakeholders and anecdotal evidence the taskforce had received.

2.4 In the 2017-18 Budget, the Government announced that it would adopt the initial recommendations of the Taskforce. One of the initial recommendations was to extend the operation of the TPRS to contractors in the courier and cleaning industries.

2.5 The TPRS is a transparency measure applying to the building and construction industry. It requires businesses in the building and construction industry to report payments they make to contractors for building and construction services to the ATO. Evidence suggests that this program has improved contractor tax compliance in the building and construction industry.

2.6 As a result of the success of the TPRS in the building and construction industry, the Interim Report of the Black Economy Taskforce recommended extending its operation to two other high-risk sectors: cleaning and couriers.

Summary of new law

2.7 Schedule 2 to this Bill introduces amendments to require entities that provide courier or cleaning services to report to the ATO details of transactions that involve engaging other entities to undertake those courier or cleaning services for them.

Comparison of key features of new law and current law

Detailed explanation of new law

Entity required to report

2.8 The amendments require that entities that have an ABN and make a supply of a courier or a cleaning service to report information to the Commissioner. Entities that do not make a supply of courier or cleaning services are not required to report information. [Schedule 2, item 1, table items 11 and 12 of section 396-55 to Schedule 1 of the TAA 1953]

Transactions that are required to be reported

2.9 An entity providing a courier or cleaning service is required to report information to the Commissioner about transactions where the entity has provided consideration (within the meaning of the GST Act) to another entity wholly or partly for cleaning or courier services. Consideration includes any payment, or any act or forbearance, in connection with a supply of anything and any payment, or any act or forbearance, in response to or for the inducement of a supply of anything (as defined in section 9-15 of the GST Act). Usually consideration will be a monetary payment, but it may also include other forms of non-cash benefits and constructive payments. [Schedule 2, item 1, table items 11 and 12 of section 396-55 to Schedule 1 of the TAA 1953]

2.10 Entities are required to report information in the approved form to the Commissioner either annually, or at such other times as the Commissioner determines by legislative instrument.

2.11 The general rules that apply to information that must be reported under Division 396 apply to this regime. This includes that where an entity has given the Commissioner a report that they have become aware has a material error in it, they must give the Commissioner an updated report within 28 days of becoming aware of the error. Similarly, where an entity has failed to give a report, or a corrected report, to the Commissioner by the time required, an administrative penalty may be imposed (see subsection 286-75(1)). An administrative penalty may also be imposed if the report includes any false or misleading statements (see subsection 284-75(1)).

2.12 Entities are not required to report in relation to transactions where they and the entities providing cleaning or courier services are members of the same consolidated group or Multiple Entry Consolidated group. Entities are also not required to report payments under Division 12 of Schedule 1 of the TAA 1953 (PAYG withholding payments) under the TPRS as those payments are subject to their own reporting regime within that Division. [Schedule 2, item 1, table items 11 and 12 of section 396-55 to Schedule 1 of the TAA 1953]

2.13 This is consistent with the exceptions that apply to transactions that are required to be reported by the building and construction industry.

2.14 In addition, a government related entity (within the meaning of the GST Act) may be required to report information about when they provide consideration to an entity for a supply of services, including a courier or cleaning service (section 396-55, table item 2).

Definition of a courier or cleaning service

2.15 The terms 'courier' and 'cleaning' are not defined, and are intended to take their ordinary meaning.

2.16 A courier service is intended to include any service where an entity collects goods from and delivers them to another place. These goods may include parcels, packages, letters, food, flowers or any other goods. The goods may also be transported by a number of different means, including by car, truck, van, motorcycle, motorised scooter, bicycle, on foot, or other means of transportation.

2.17 A cleaning service is intended to refer to any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it. Some examples of this include office cleaning, road sweeping or street cleaning, swimming pool cleaning, park and facilities cleaning, or event cleaning.

2.18 The Commissioner may exempt entities from their reporting obligations under the third party reporting regime. For example, the Commissioner may exempt a class or classes of entity from reporting information when the application of a reporting requirement to those entities is unnecessary to assist the Commissioner. Alternatively, a particular entity may be exempted based on specific circumstances that may impact on that entity's ability to report in a particular year.

Application and transitional provisions

Application and commencement

2.19 The amendments in Schedule 2 commence on the day after the amendments receive Royal Assent. [Clause 2]

2.20 These amendments apply to consideration that is provided on or after 1 July 2018, whether under an existing ongoing arrangement or otherwise, and regardless of the time the supply occurred and the service is provided. However, it does not apply where the entity is merely liable to provide consideration prior to 1 July 2018, if no consideration is provided on or after 1 July 2018. [Schedule 2, item 2]

Transitional provision: Commissioner is taken to have made a determination

2.21 The Commissioner is taken to have made a determination under subsection 396-70(4) of Schedule 1 to the Taxation Administration Act 1953. This applies from the date of commencement of Schedule 2 to the Bill. [Schedule 2, item 3(1)]

2.22 The determination that is taken to be made exempts entities that make a supply of either a courier or cleaning service from the requirement to prepare and give a report to the Commissioner detailing payments made to other entities for courier or cleaning services. The exemption applies if:

•

the total payments a reporting entity receives for supplies of courier or cleaning services are less than 10 per cent of the reporting entity's relevant GST turnover (the turnover-threshold test);

•

the reporting entity is not required to report details of the transaction under a separate reporting obligation in section 396-55 of Schedule 1 to the Taxation Administration Act 1953; and

•

the entity has not chosen to prepare and give the report.

[Schedule 2, items 3(2) and 3(3)]

2.23 The determination that is taken to be made ensures that entities that only make a minimal number of supplies of cleaning or courier services as a proportion of their overall GST turnover are not required to prepare and give reports. [Schedule 2, items 3(2) and 3(3)]

Turnover-threshold test

2.24 The turnover-threshold test applies to each report that the entity is required to prepare and give to the Commissioner. The test also applies separately to courier and cleaning services, so that if an entity offers both courier and cleaning services it must work out whether it satisfies the test separately for both cleaning and courier services. If an entity receives less than 10 per cent of its GST turnover in payments for courier services, but 10 per cent or more of its GST turnover in payments for cleaning services, it will be required to report payments made to contractors or subcontractors in relation to cleaning services and not courier services. [Schedule 2, items 3(2)(a) and 3(3)(a)]

2.25 The test compares the payments that a reporting entity receives for supplies of courier or cleaning services for the period that the report covers with the entity's relevant GST turnover. Where the payments are less than 10 per cent of the entity's relevant GST turnover the test is satisfied. This includes supplies made through a contractor or subcontractor of the entity, where the consideration for that supply is received by the reporting entity. [Schedule 2, items 3(2)(a) and 3(3)(a)]

2.26 An entity's relevant GST turnover is either an entity's 'current GST turnover', or 'projected GST turnover' as worked out in accordance with the GST Act. If an entity has been operating for more than 12 months then their 'current GST turnover' is the 'relevant GST turnover' used in the turnover-threshold test. If an entity has been operating for less than 12 months, then its 'projected GST turnover' is the relevant GST turnover. In either case, the relevant GST turnover used is the turnover as of the last day of the period for which the entity would be required to submit a report with details of the transactions. [Schedule 2, items 3(2)(a), 3(3)(a) and 3(7)]

2.27 Generally, an entity's 'current GST turnover' at a time during a particular month is the sum of the amount of all the supplies that the entity has made, or is likely to make, during the 12 months ending at the end of that month, with certain types of supplies excluded from that calculation (section 188-15 of the GST Act). An entity's 'projected GST turnover' at a time during a particular month is the sum of the values of all the supplies it has made, or is likely to make, during that month and the next 11 months, with certain types of supplies excluded from that calculation (section 188-20 of the GST Act). [Schedule 2, items 3(2)(a), 3(3)(a) and 3(7)]

2.28 The turnover-threshold test is directed at payments the reporting entity receives for making supplies of courier or cleaning services. A supply has the same meaning as it has in the GST Act. There are a number of ATO rulings which explain what constitutes a supply in particular circumstances. Where a courier or cleaning service is part of a mixed supply with other goods or services, only the payment received for the courier or cleaning service is counted towards the 10 per cent threshold. The other goods or services that are part of the mixed supply are not counted towards the 10 per cent threshold. [Schedule 2, items 3(2)(a) and 3(3)(a)]

2.29 Where the courier or cleaning service is part of a composite supply the dominant part of which is a courier or cleaning service, the whole of the payment is to be counted towards the 10 per cent threshold. [Schedule 2, items 3(2)(a) and 3(3)(a)]

2.30 Whether a courier or cleaning service is part of a mixed or composite supply is a question of fact. There are a number of ATO rulings which characterise whether a supply is a mixed or composite supply.

No exemption where otherwise required to report details of transactions

2.31 Where an entity would be required to report details of the transaction because of a separate reporting obligation under section 396-55 of Schedule 1 to the Taxation Administration Act 1953, then the exemption does not apply to those transactions. This ensures that existing reporting obligations are not affected by the exemption. [Schedule 2, items 3(2)(b), 3(3)(b) and 3(7)]

Choice to lodge a report

2.32 Even where the reporting entity satisfies the turnover-threshold test and is not otherwise required to report details of the transaction, the entity may still choose not to be covered by the exemption and to lodge a report setting out details of the transactions. [Schedule 2, items 3(2)(c), 3(3)(c) and 3(7)]

2.33 An entity is not required to notify the Commissioner before making a choice whether to give a report. The giving of the report for the transaction is sufficient evidence of the making of the choice to give the report. It is not necessary to notify the Commissioner where the entity intends to rely on the exemption and not prepare and give a report. [Schedule 2, item 3(6)]

2.34 A choice to report that is made for one report does not restrict an entity from choosing whether or not to give a report for a later period. [Schedule 2, items 3(2)(c) and 3(3)(c)]

Exemption is taken to be made under subsection 396-70(4)

2.35 The exemption is taken to have been made under the Commissioner's power to exempt classes of entities from the requirement to prepare and give reports, or to prepare and give reports for specified classes of transactions. [Schedule 2, item 3(1)]

2.36 While the exemption is taken to have been made under subsection 396-70(4), it is not a legislative instrument. This means that the exemption is not subject to a range of provisions under the Legislation Act 2003 which would otherwise apply to legislative instruments, such as the requirement to register a legislative instrument, the requirement that legislative instruments must be tabled for disallowance, or the requirement that legislative instruments sunset after a period of time. This is appropriate as the making of the exemption in the primary law is subject to scrutiny by Parliament. [Schedule 2, item 3(4)]

2.37 Ordinarily, a legislative instrument is not able to contradict or modify the operation of an Act unless that Act explicitly contemplates that outcome. Because the exemption is made by an Act of Parliament, a provision has been inserted to ensure that a new instrument made under the existing power in subsection 396-70(4) can amend or repeal the determination that is taken to be made. [Schedule 2, item 3(5)]

This ensures that there is flexibility to modify the determination to address any concerns with its operation raised by affected entities in the future.