Explanatory Memorandum(Circulated by authority of the Assistant Treasurer, the Hon. Stuart Robert MP)
Chapter 2 Third party reporting
Outline of chapter
2.1 Schedule 2 to this Bill amends Schedule 1 to the TAA 1953 to require entities with ABNs providing 'road freight', 'IT' or 'security, investigation or surveillance' services to report to the ATO information about transactions in which other entities are engaged to undertake those services on their behalf.
2.2 All legislative references in this Chapter are to Schedule 1 to the TAA 1953 unless otherwise stated.
Context of amendments
2.3 The black economy is a significant, complex and growing economic and social problem in Australia. The Black Economy Taskforce's Final Report estimated that the size of the black economy had likely doubled since 2012 from 1.5 percent of GDP to 3 per cent of GDP, or around $50 billion.
2.4 In response to this problem, the Government established the Black Economy Taskforce, chaired by Mr Michael Andrew AO.
2.5 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.
2.6 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 entities engaging contractors in the courier and cleaning industries.
2.7 On 7 February 2018, the Government introduced the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 to Parliament, which includes amendments to extend the operation of the TPRS to entities engaging contractors in the courier and cleaning industries.
2.8 As part of the 2018-19 Budget, the Government released the Black Economy Taskforce's Final Report. The Final Report also recommended that the TPRS be extended to additional high-risk industries, including security, road freight and IT.
2.9 The Government responded with an announcement that it would further extend the operation of the TPRS to entities engaging contractors in the security, road freight, and IT industries.
2.10 The TPRS is a transparency measure that was first applied to the building and construction industry. It requires businesses to report to the ATO payments they make to contractors for services. Evidence suggests that this program has improved contractor tax compliance in the building and construction industry.
Summary of new law
2.11 Schedule 2 to this Bill makes amendments to require entities that provide 'road freight', 'IT' or 'security, investigation or surveillance' services to report to the ATO details of transactions that involve engaging other entities to undertake those services on their behalf.
Comparison of key features of new law and current law
|New law||Current law|
|Entities that provide 'road freight', 'IT', 'security, investigation or surveillance' services are required to report to the ATO details of transactions that involve engaging other entities to undertake those services for them.||No equivalent.|
Detailed explanation of new law
Entity required to report
2.12 The amendments require entities that have an ABN and make supplies of 'road freight', 'IT' or 'security, investigation or surveillance' services to report information to the Commissioner about transactions with contractors providing such services on behalf of these entities. [Schedule 2, item 1, table items 12 to 14 of section 396-55 in Schedule 1 to the TAA 1953]
Transactions that are required to be reported
2.13 An entity providing a 'road freight', 'IT' or 'security, investigation or surveillance' 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 to provide that service on its behalf.
2.14 Consideration (as defined in section 9-15 of the GST Act) includes any payment, or any act of 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. Usually consideration will be a monetary payment, but it can also include other forms of non-cash benefits and constructive payments. [Schedule 2, item 1, table items 12 to 14 of section 396-55 in Schedule 1 to the TAA 1953]
2.15 The basis on which a contractor is paid by the reporting entity does not affect whether the transaction is required to be reported. For example, it does not matter whether the contractor is paid on a 'time basis', rather than a 'project basis' for work performed.
2.16 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.
2.17 The general rules that apply to information that must be reported under Division 396 apply to this regime. This means that if an entity has given the Commissioner a report that they have become aware contains a material error, they must give the Commissioner an updated report within 28 days of becoming aware of the error. Similarly, if an entity has failed to give a report, or a corrected report, to the Commissioner by the time required, an administrative penalty applies (see subsection 286-75(1)). An administrative penalty also applies if a report includes any false or misleading statements (see subsection 284-75(1)).
2.18 Entities are not required to report in relation to transactions if they and the entities engaged to provide 'road freight', 'IT' or 'security, investigation or surveillance' services on their behalf are members of the same consolidated group or Multiple Entry Consolidated group. Entities are also not required to report any payments to which Division 12 of Schedule 1 to the TAA 1953 (PAYG withholding payments) applies as those payments are subject to their own withholding and reporting regime. [Schedule 2, item 1, table items 12 to 14 of section 396-55 in Schedule 1 to the TAA 1953]
2.19 This is consistent with the exceptions that apply to transactions that are required to be reported by the building and construction and courier and cleaning industries.
2.20 In addition, under the existing law, 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 relevant services (section 396-55, table item 2). This includes a 'road freight', 'IT' or 'security, investigation or surveillance' service.
Definition of road freight, IT or security, investigation or surveillance service
2.21 The terms 'road freight', 'IT' and 'security, investigation or surveillance' are not defined and are intended to take their ordinary meaning.
2.22 A 'road freight' service has been added to the third party reporting table item that covers courier services. This ensures that there is a single reporting obligation for entities that make a supply of a courier service or a road freight service. If an entity supplies either service, they are required to report to the Commissioner, unless otherwise provided.
2.23 The use of the phrase 'road freight' in addition to 'courier' is intended to ensure that any service where goods are transported over road is covered by the reporting obligation. 'Road freight' refers to the transport of goods by freight over road, which is not included in the meaning of a 'courier' service. Typically, goods will be sent by road freight where the goods are transported in bulk using large vehicles. This includes services such as road freight transport, log haulage, road freight forwarding, taxi trucks, furniture removal and road vehicle towing. A road freight service does not, however, need to include the whole of a service offering but may include only part of a road freight service. For example, an entity may be required to report details of transactions where it has engaged specialist drivers to deliver freight goods using a vehicle owned by the reporting entity.
2.24 The use of the word road in relation to freight limits the requirement to only those freight services that relate to road transport, and excludes other modes of freight transportation, such as by boat or aeroplane. However, this qualification is not intended to apply to courier services, which may involve the transportation of goods other than on road, such as by bike on bike paths.
2.25 An 'IT' service involves the provision of expertise in relation to computer hardware or software to meet the needs of a client. These services may be performed on site, or may be provided remotely through the internet, and include services that support or modify the operation of hardware or software.
2.26 An IT service does not include the mere sale or lease of hardware or off-the-shelf software. However, if the seller or lessor of the hardware or software modifies it for the purchaser or lessee, or develops specific software for them, then those services will be an IT service.
2.27 If computer software is used by the entity to provide a service other than an IT service, the mere use of software in these circumstances does not make the service an IT service. For example, the use of software to provide an accounting, project management, or word processing service is not an IT service.
2.28 Some examples of IT services performed in relation to a computer include:
- technical support;
- computer facilities management;
- internet and web design consulting;
- computer hardware consulting;
- software development;
- computer network systems design and integration;
- software installation;
- computer programming;
- software simulation and testing;
- computer software consulting; and
- systems analysis.
Security, investigation and surveillance services
2.29 Security refers to protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like. The use of this term is intended to include services such as locksmithing, burglary protection, body guards, security guards, armoured cars and any other services which can be provided to protect individuals or property. However, it would not generally refer to things such as policing, or the general operation of detention facilities.
2.30 An investigation refers to a searching inquiry in order to ascertain facts. This would typically be conducted by a detective or an enquiry agency, and may be about matters that are not necessarily related to security. For example, it could refer to investigations conducted or enquiries made to assess the veracity of insurance claims. Generally, investigation services involve a person making specific investigations into persons or matters.
2.31 However, an investigation service does not refer to any service which may be used to compile or gather information, such as online search engines or databases which are maintained to perform checks. Where a person merely checks an existing database for information (such as for the purpose of preparing a police check or credit score), this would not usually be considered an investigation service. An investigation service also would not refer to the making of general enquiries, such as requesting a person's name, date of birth, or address.
2.32 A surveillance service refers to a general watch or observation maintained over an area or location, by one or more persons or by using devices such as motion detector alarms, cameras or recorders. This includes watchmen services, alarm monitoring and services that involve the use of closed circuit television cameras for the purpose of surveillance or maintaining security.
Application and transitional provisions
2.33 The amendments in Schedule 2 commence on the later of:
- the first 1 January, 1 April, 1 July or 1 October after the amendments receive Royal Assent; and
- immediately after the commencement of the legislation in the Treasury Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 that provides for the TPRS to be extended to entities engaging contractors in the courier and cleaning industries.
- [Clause 2]
2.34 The amendments in Schedule 2 do not commence if the Treasury Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 that provides for the TPRS to be extended to entities engaging contractors in the courier and cleaning industries has not commenced. This is required because Schedule 2 makes amendments to the tax law assuming that the Treasury Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 has been enacted.
2.35 These amendments apply to consideration that is provided on or after 1 July 2019, whether under an existing ongoing arrangement or otherwise, and regardless of the time the supply occurred or the service is provided. However, it does not apply where the entity is merely liable to provide consideration prior to 1 July 2019, if no consideration is provided on or after 1 July 2019. [Schedule 2, item 2]
Transitional provision: Commissioner is taken to have made a determination in relation to road freight services
2.36 Subitem 3(1) of Schedule 2 to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 provides that the Commissioner is taken to have made a determination that excludes a class of reporting entities from reporting courier or cleaner contractor payments. To the extent that this relates to courier services, this provision is revoked by this Schedule, with effect from the later of 1 July 2019 or the commencement of this Schedule. [Schedule 2, item 3(1)]
2.37 As a result of the amendments, the determination that the Commissioner is taken to have made exempts entities that make a supply of a courier or road freight service from the requirement to prepare and give a report to the Commissioner on payments made to other entities for courier or road freight services. The exemption applies if:
- the total payments a reporting entity receives for both courier services and road freight services are less than 10 per cent of the 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 TAA 1953; and
- the entity has not chosen to prepare and give the report.
- [Schedule 2, item 3(2)]
2.38 The revised determination reflects that there is a single reporting obligation for courier and road freight services, and that supplies of both of those services should be combined to determine whether an entity exceeds the turnover-threshold test. This recognises that many businesses offer both courier and road freight services. [Schedule 2, item 3(2)]
2.39 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. An entity is not required to notify the Commissioner before making a choice whether or not 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. [Schedule 2, items 3(2)(c) and 3(3)]
2.40 Similarly, if an entity is not otherwise required to lodge reports, a choice that is made by the entity about whether to lodge a report for one reporting period does not restrict that entity from choosing whether or not to report for a later reporting period.
2.41 A number of terms are defined for the purposes of the application provision, including alternative reporting period, amended provision, relevant GST turnover, inserted item and road freight service transaction. [Schedule 2, items 2(3) and 3(7)]
2.42 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.
2.43 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. For similar reasons, the revoking of the determination that the Commissioner is taken to have made by the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 is also not a legislative instrument. [Schedule 2, item 3(4)]
2.44 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. This ensures that there is flexibility to modify the determination to address any concerns with its operation raised by affected entities in the future. [Schedule 2, item 3(5)]
2.45 Schedule 2 also addresses the situation in which the Commissioner determines an alternative reporting period that begins prior to 1 July 2019. In such situations, transactions occurring on or after 1 July 2019 that are made in that alternative reporting period are instead subject to the deemed determination made under the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018, disregarding that the determination may have been revoked on 1 July 2019. This ensures that a determination is in place to allow the exemption from reporting for courier transactions for the alternative reporting period that includes both a period prior to 1 July 2019 and also after that date. [Schedule 2, item 3(6)]