Prescribed Payments System

PPS Bulletin 2

How it affects the building and construction industry

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Date of Issue: 9 January 1997

Valid from 9 January 1997

If you are carrying on a business in an industry covered by the Prescribed Payments System and you pay another person for work in that same industry, then you may be obliged to deduct tax from any payments you make to that person.

This bulletin explains what Prescribed Payments are and how they affect the building and construction industry. The other 8 industries covered by PPS are:

• • road transport

• • architectural services

• • cleaning

• • engineering services

• • joinery and cabinet making

• • motor vehicle repair

• • surveying

• • professional building and construction services

Similar bulletins are also available for each of these other industries.

What is a prescribed payment?

A prescribed payment must satisfy all of the following conditions:

• • It must be a payment made under a contract which involves the performance of work.

• • The work performed must consist of an activity within an industry covered by PPS.

• • The activity must be carried out for a prescribed person. (See the section titled Who must the work be carried out for?)

Note also that PPS doesn't only apply to payments to individuals. It can also apply to payments to companies, partnerships, trusts, trustees of trust estates, body corporates, etc.

Once you have determined that a payment is prescribed, please refer to the relevant booklet titled "PPS Payers", "PPS Payees", or "PPS Tax exempt organisations & businesses in non-prescribed industries". These publications explain what you must do when making or receiving a prescribed payment and are available from your local Tax Office.

Which payments are not covered by PPS?

The following payments are not covered by PPS:

• • a payment made under contract only for the sale of goods or materials

• • a payment of salary or wages made to a common law employee.

Definitions

Listed below are definitions for terms used in PPS.

Which building and construction industry activities are included in PPS?

The following work on any structure, road work or thoroughfare is affected by PPS:

• • construction
• • erection
• • installation
• • alteration
• • modification
• • repair
• • improvement
• • demolition
• • destruction
• • dismantling
• • removal

Examples

• • painting, decorating, proofing or other treatment of internal or external surfaces

• • the installation, fixing or fitting in, or to, any structure of:

  • - heating, cooking, refrigeration, insulation, lighting, power supply, water supply, irrigation, sanitation, drainage, fire or security protection, sound, communication, air conditioning, ventilation, or any other systems or devices

  • - walls, ceilings, linings or floors

  • - roof tiles, ceramic tiles, quarry tiles, stone, or other interior or exterior cladding or covering

  • - built-in furniture, electrical or plumbing fittings

  • - swimming pools

• • internal or external cleaning carried out in the course of any of the above activities and cleaning of the building prior to occupation

• • any other activity on a structure, road works or thoroughfare, or on land which these are located. This includes work preparing, forming part of, or completing any of the above activities including:

  • - site clearance

  • - earth moving

  • - excavation

  • - laying foundations

  • - erection of scaffolding

  • - site restoration

  • - landscaping

  • - access works

But not including:

• • architectural, engineering, surveying, or other professional building and construction activities

• • delivery only of goods and materials (including waste) in connection with the above activities, except in circumstances where tied drivers are contracted

• • sign writing (where no structural work is done)

• • the production of murals and similar works

For whom must the work be carried out?

To be a prescribed payment the work must be carried out for:

• • any person who is carrying on a business that consists:

  • - wholly or principally of carrying out any of the above building and construction activities; or

  • - in whole or in part of furnishing or arranging the services of another person to carry out any of the above building and construction industries;(i.e. people who are not directly involved in performing any of the activities described above but are carrying on a business [agency] that provides the services of others to perform these activities).

  • - in part of carrying out any of the above building and construction activities for other people.

• • a householder, owner builder, or any other person not in the building and construction industry business provided the work is in connection with a building and construction project costing more than $10,000 (including goods or materials and surveying, designing, and other activities preliminary to the project).

A person who satisfies any of these conditions will be a prescribed person for the building and construction industry.

Is there anything else I need to know?

Invoice splitting

Separate invoices and/or payments made in relation to a goods and services contract will be treated as a single contract for PPS purposes. This means that the full contract amount must be taken into account in determining whether the $10,000 threshold is exceeded, as well as in calculating the amount to deduct.

Building and construction industry decision chart

The diagram set out below will help you determine if a payment is a prescribed payment in the building and construction industry.

Examples

A bank clerk contracts a builder to build her house. Any payments will be prescribed because she is undertaking a building and construction project that may reasonably be expected to exceed $10,000.

The bank clerk will have PPS responsibilities as a HOUSEHOLDER. If she was organising her own contractors (e.g. carpenter, plumber, painter, tiler, etc) she would have responsibilities under PPS as an OWNER BUILDER.

A partnership undertakes renovations to the dining room of their restaurant. The total cost of the project is $20,000. They contract a builder to carry out the project. Although they are not involved in the building and construction industry, they are undertaking a building project which will cost more than $10,000. As the construction project is for a business or income producing activity, the partnership will have responsibilities as a payer. Any payments to the builder will be prescribed as there is a contract that involves the performance of activities in the building and construction industry.

A builder sub-contracts an electrician, a bricklayer, and a plasterer. Payments to these people will be prescribed as there is the performance of work involved; the activities performed by the sub-contractors all fall within the building and construction industry; and the builder is wholly or principally in the business of building and construction. The builder has responsibilities as a payer and the sub-contractors are payees.

A builder purchases carpet to lay in a building he is constructing. The builder contracts the retailer to supply and install the carpet. There is a contract involving the provision of labour and the carpet retailer is performing an activity in the building and construction industry, because the builder is wholly or principally in the business of building and construction. The payment from the builder to the carpet retailer will be prescribed.

A tile retailer has taken on a contract to supply and install bathroom tiles for a customer. The retailer subcontracts the work out to another tiler. The payment from the retailer to the subcontractor will be prescribed because there is a contract that involves the performance of work. Tiling is an activity within the building and construction industry, and the retailer is in the business of arranging building and construction activities for other people.

Do you need more information?

If you have any questions or need more information about how PPS applies to you, please contact your local Tax Office:

This bulletin is a guide to the law only. It has been produced to help you understand the Prescribed Payments System. It is current as at 09/01/97.

ATO references:
NO NAT 2394.01.97

Related Rulings/Determinations:
PPS Bulletin 2 - Notice of Withdrawal