Explanatory StatementIssued by authority of the Assistant Treasurer
Subject - The Taxation Administration Act 1953
The Taxation Administration Act 1953 (the Act) provides for the administration of the tax system.
Section 18 of the Act provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.
Division 405 in Schedule 1 to the Act provides for certain transactions to be reported to the Commissioner of Taxation (the Commissioner) by a purchaser (entity paying for the transaction) where the payment is made for a supply that is specified in regulations made for the purposes of section 405-5 in Schedule 1 to the Act. The regulations may specify the supply by reference to the goods or services supplied, the supplier and/or the purchaser.
The Taxation Administration Regulations 1976 (the Principal Regulations) prescribe information necessary for the operation of the Act.
Taxation Administration Amendment Regulation 2012 (No. 1) (the Regulation) amends the Principal Regulations to prescribe the information that is required of businesses in the building and construction industry to report to the Commissioner the details of payments they make to contractors for the supply of building and construction services.
Details of the Regulation are set out in the Attachment.
The Act specifies no conditions that need to be satisfied before the power to make the Regulations may be exercised.
The Regulation gives effect to a 2011-12 Budget initiative that arose as a result of the Australian Taxation Office (ATO) having identified significant levels of non-compliance by contractors in the building and construction industry.
Public consultation on a discussion paper ran from 30 May 2011 until 27 June 2011. Following receipt of submissions, Treasury and the ATO attended consultation meetings with industry groups and members of the ATO's building and construction consultative forum. Feedback on the discussion paper led to the development of a bridging document. Again, Treasury and the ATO met with industry groups and members of the ATO's building and construction consultative forum.
Public consultation was also undertaken in respect to the exposure draft regulations and explanatory materials from 14 December 2011 until 20 January 2012.
A compliant Regulatory Impact Statement was developed prior to the 2011-12 Budget announcement.
The Regulation commences on 1 July 2012.
Details of the Taxation Administration Amendment Regulation 2012 (No. 1)
Section 1 - Name of Regulation
Section 1 provides that the title of the Regulation is the Taxation Administration Amendment Regulation 2012 (No. 1).
Section 2 - Commencement
Section 2 provides that the Regulation commences on 1 July 2012.
Section 3 - Amendment of Taxation Administration Regulations 1976
Section 3 provides that Schedule 1 to the Regulation amends the Taxation Administration Regulations 1976 (the Principal Regulations).
Schedule 1 - Amendments
Item 1 - Regulation 64
Subregulation 64(1) - reportable supplies in the building and construction industry
Section 405-5 in Schedule 1 to the Taxation Administration Act 1953 (the Act) requires purchasers to report supplies to the Commissioner of Taxation, which essentially means that they must report certain transactions for which they have been issued an invoice. The type of supplies that may need to be reported must be defined by regulation.
Subregulation 64(1) provides that, for the purposes of section 405-5 of Schedule 1 to the Act, a supply is made by a supplier to a purchaser if:
- the purchaser is carrying on a business that is primarily in the building and construction industry;
- the purchaser has an Australian Business Number (ABN);
- the supplier supplies to the purchaser:
- building and construction services; or
- a supply of both goods and building and construction services, if the services are not merely incidental to the supply of goods.
Purchaser and supplier
In the building and construction industry, it is common to use the word 'payer' to describe a purchaser, and 'payee' to describe a supplier. Other words may also be used. This Regulation applies to purchasers and suppliers regardless of how they are described in an invoice.
Incidental building and construction services
The supply of building and construction services will be incidental where the supply of the service is not of substance when compared to the supply of the goods.
Example - building and construction services that are incidental to the supply of goods Kevin purchases a large volume of plumbing supplies, including a new type of tap, from Harry's Hardware, which Harry installs because Kevin is unfamiliar with it. Harry invoices Kevin for the tap and an additional amount for the labour to install it. Kevin does not need to report the payment he makes to Harry's Hardware for installing the tap because this service is merely incidental to the business of supplying goods.
Subregulation 64(6) - determining if an entity is in the building and construction industry
Subregulation 64(6) provides that building and construction services include any of the following activities, if they are performed on or in relation to any part of a building, structure, works, surface or sub-surface:
|· Alteration||· Assembly|
|· Construction||· Demolition|
|· Design||· Destruction|
|· Dismantling||· Erection|
|· Excavation||· Finishing|
|· Improvement||· Installation|
|· Maintenance||· Management of building and construction services|
|· Modification||· Organisation of building and construction services|
|· Removal||· Repair|
|· Site preparation|
Examples of building and construction services
The following is a list of occupations and work activities that satisfy the definition of building and construction services:
|· Architectural work (including drafting and design)||· Asphalt and bitumen work|
|· Assembly, installation or erection of pre-fabricated houses||· Block laying|
|· Bricklaying||· Building of room components (e.g. kitchens, bathroom components, laundry components, cupboards, etc)|
|· Cabinet making (including joinery and offsite fabrication for installation at a building site)||· Cable laying|
|· Communications construction||· Concreting (including formwork, pouring and finishing)|
|· Construction and sealing roads||· Construction management|
|· Decorating||· Demolition|
|· Distribution line construction||· Drainage work|
|· Dredging||· Earthworks|
|· Electrical machinery, heavy, installation (on-site assembly)||· Electrical work|
|· Electrical construction||· Elevator and escalator installation and work|
|· Engineering||· Equipment rental with operator (if there is no operator, it is just rental of a good and not a building and construction activity)|
|· Erection of frames||· Erection of scaffolding|
|· Excavation and grading||· Fencing|
|· Finishing||· Flood control system construction|
|· Flooring (e.g. tiling, laying carpet, linoleum, timber flooring, floating floors, resilient flooring, slate tiles, etc)||· Foundation work|
|· Gas plumbing||· Glass and glazing work|
|· Hanging or installing doors||· Installation of fittings|
|· Installation of hard-wired alarm systems (security, fire, smoke, etc)||· Installation of hot water systems|
|· Installation of pre-fabricated components (e.g. kitchens, bathroom components, laundry components, cupboards, etc)||· Installation of pre-fabricated temperature controlled structures|
|· Installation of septic tanks||· Installation of solar devices (e.g. hot water or electricity connections)|
|· Installation of tanks||· Installation of window frames|
|· Installation of windows||· Installation or work on devices for heating and cooling|
|· Insulation work (walls, roofs, windows, etc)||· Internet infrastructure construction|
|· Irrigation system construction||· Land clearing|
|· Landscaping construction (including paving and design)||· Levelling sites|
|· Painting (internal and external surfaces, including roofs)||· Pile driving|
|· Pipeline construction||· Plastering (or other wall and ceiling construction)|
|· Plumbing work||· Preparation of site|
|· Project management||· Rendering (or other internal or external surface finishes)|
|· Retaining wall construction||· River work construction|
|· Roofing and guttering||· Sewage or stormwater drainage system construction|
|· Stonework||· Surveying|
|· Swimming pool installation||· Swimming pool, below ground concrete or fibreglass, construction|
|· Tiling (walls, etc)||· Timber work|
|· Wallpapering||· Waterproofing interior and exterior surfaces|
Examples of buildings, structures, works, surfaces or sub-surfaces
The following is a list of examples of things that are considered buildings, structures, works, surfaces or sub-surfaces:
|· Aerodrome runways||· Apartments|
|· Breakwaters||· Bridges|
|· Canals||· Commercial buildings|
|· Communications, internet and electrical infrastructure||· Dams|
|· Duplex houses||· Electricity power plants|
|· Elevated highway||· Flats|
|· Footpath, kerb and guttering||· Furnaces|
|· Garages||· Golf courses|
|· Harbour works||· High-rise flats|
|· Highways||· Housing buildings (including pre-fabricated housing)|
|· Industrial buildings||· Jetties|
|· Lakes||· Mine sites|
|· Office buildings||· Oil refineries|
|· Parking lots||· Pipelines|
|· Power plants||· Railways|
|· Roads||· Semi-detached houses|
|· Sewage storage and treatment plants||· Sheds|
|· Sports fields||· Streets|
|· Television or radio transmission towers||· Tunnels|
|· Water tanks||· Waterworks|
Subregulation 64(5) provides tests for determining if a purchaser is carrying on a business that is primarily in the building and construction industry. The test is satisfied if:
- in the current financial year, 50% or more of the purchaser's business activity relates to building and construction services; or
- in the current financial year, 50% or more of the purchaser's business income is derived from providing building and construction services; or
- in the financial year immediately preceding the current financial year, 50% or more of the purchaser's business income was derived from providing building and construction services.
Example - a mixed business that satisfies the income test Scott's Cabinet Makers is a business that makes and installs custom-made kitchen cabinets, which is a type of activity that constitutes building and construction services. It also makes and sells ornamental wooden carvings. From the 2012-13 income year, the ratio of income that Scott's Cabinet Makers earns from its business activities is as follows:
|Financial year||Type of income earned|
|Year ended 30 June 2013||30% cabinet-making; 70% carvings sales|
|Year ended 30 June 2014||60% cabinet-making; 40% carvings sales|
|Year ended 30 June 2015||40% cabinet-making; 60% carvings sales|
Example - a mixed business that does not satisfy the income test Bert's Building Supplies is a business that makes 95% of its income from selling building equipment to builders and homeowners. The other 5% of its income arises from arranging the installation of certain products, such as skylights (which constitutes building and construction services). Bert's Building Supplies will not be required to report payments it makes to contractors because most of its income is derived from retail activities and not from providing building and construction services.
Example - business with separate entity for building and construction services Continuing with the preceding example, Bert's Building Supplies decides to set up a separate entity, Ingrid's Installations, to install the products it sells. From that point on, Bert's Building Supplies derives all of its income from retail sales and will therefore have no reporting obligation. Ingrid's Installations, on the other hand, derives all of its income from performing building and construction services. It will therefore need to report any payments that it makes to subcontractors.
Example - miner or builder? Black Coal establishes a new mining facility that requires the construction of a range of infrastructure. Black Coal contracts Earl's Earthworks to carry out the work; Earl's Earthworks in turn subcontracts the work. Black Coal will not be required to report payments it makes to Earl's Earthworks because all of its income is derived from coal mining. Earl's Earthworks, which is carrying on a business primarily in the building and construction industry, will need to report payments it makes to subcontractors.
Example - home-builder Kristyn, who has an ABN for the purposes of running a bookkeeping business, manages the construction of her new home and in doing so makes payments directly to contractors. As Kristyn does not derive income from building and construction services, and is merely acting in her domestic capacity, she will not be required to report on the payments made to contractors.
Example - activities test Red Rocks, an iron ore miner, incurs significant capital costs such that 50% of its expenditure is on capital works in the 2014-15 tax year. However, 70% of its employees and contractors are engaged in mining activities. Therefore, Red Rocks is not primarily engaged in the building and construction industry and as such does not need to report payments made for building and construction services.
Subregulation 64(2) - exclusion for consolidated groups and multiple entry consolidated groups
Subregulation 64(2) ensures that transactions need not be reported if both the supplier and the purchaser are members of the same consolidated group or MEC group.
The reason for this rule is that members of a consolidated group or MEC group are effectively taxed as a single entity.
Example Brick Co and Paint Co are both members of the Big Co consolidated group. Brick Co provides building services. Brick Co makes a payment to Paint Co for painting its building project. As Paint Co and Brick Co are in the same consolidated group, Brick Co will not have to report on the payment made to Paint Co for the provision of painting services. Brick Co will, however, have to report on payments made to entities outside the consolidated group for the supply of building and construction services.
Subregulation 64(3) - exclusion for withholding payments
Subregulation 64(3) ensures that transactions need not be reported if the payment is a withholding payment as defined by section 995-1 of the Income Tax Assessment Act 1997.
This means that payments made to individuals and entities that are subject to the Pay As You Go (PAYG) withholding rules (for example, employees and contractors that do not have ABNs) will be excluded from the Regulation.
Example Big Builder subcontracts Colin to perform carpentry work. When Colin invoices Big Builder, he does not quote an ABN. Big Builder in turn withholds tax from the payment it makes to Colin, and then reports and remits this to the Commissioner of Taxation. Big Builder does not have to do anything to comply with this Regulation.
Subregulation 64(4) ensures that certain phrases used in the Regulation have the same meaning as they do in the Income Tax Assessment Act 1997.
Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Taxation Administration Amendment Regulation 2012 (No. 1)
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Regulation gives effect to a 2010-11 Budget initiative that arose as a result of the Australian Taxation Office having identified significant levels of non-compliance by contractors in the building and construction industry.
Human rights implications
This Legislative Instrument does not engage any of the applicable rights or freedoms.
This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.
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