The Taxable Payments Annual Report (TPAR) is an Australian document that certain businesses and government entities must file to report payments made to contractors for providing specific services. It was created in 2012 in response to concerns about widespread tax evasion among contractors in certain industries, particularly the building and construction industry.

The government's goal was to improve reporting and compliance by making businesses responsible for reporting payments made to contractors, thus increasing transparency and helping the Australian Taxation Office (ATO) identify possible tax avoidance. For the 2020 – 2021 fiscal year, the ATO collected more than AU$475 billion, with about half coming from individual income taxes. Below, we'll discuss what businesses need to know about the TPAR.

What's in this article?

• What is the Taxable Payments Annual Report meant to accomplish?
  
• What's included in the Taxable Payments Annual Report?
  
• Which industries are affected by the Taxable Payments Annual Report?
  
• How to account for the Taxable Payments Annual Report
  
• Taxable Payments Annual Report exemptions
  
• What is the Taxable Payments Annual Report filing process?
  

What is the Taxable Payments Annual Report meant to accomplish?

Improving tax compliance

TPAR helps tax authorities track whether contractors are reporting their income accurately. In industries where the use of contractors is widespread, there's a higher risk of under-reported or unreported earnings, and the TPAR provides a clear record of payments made to contractors.

Deterring tax evasion

The existence of a reporting system such as the TPAR acts as a deterrent against tax evasion. Contractors are more likely to declare their income accurately, knowing that payments are reported by the client business.

Guaranteeing fairness in the tax system

The TPAR helps create a level playing field in the tax system. By requiring accurate reporting of payments, it ensures that all individuals and businesses contribute their fair share.

Helping with auditing and enforcement activities

For tax authorities, the TPAR provides valuable data that can be used in auditing and enforcement activities because it enables easier identification of discrepancies in reported income and payments.

Gathering data for economic analysis

Beyond tax compliance, the TPAR provides a wealth of data that can be analysed to understand economic patterns in contractor-heavy industries. This information can be valuable for policy-making and economic forecasting.

What's included in the Taxable Payments Annual Report?

The TPAR includes detailed information about the payments made to contractors over the course of a financial year. The key elements are generally:

• Contractor's details: This includes the contractor's name, address and Australian Business Number (ABN).

• Payment information: The total amount paid to the contractor during the financial year is reported. This encompasses all forms of payment, such as cash, cheques, credit and direct deposit.

• GST component: If the payment to the contractor included goods and services tax (GST), this is usually reported separately.

• Invoice details: The report may include details of the invoices related to the payments, such as invoice numbers and dates.

• Nature of services: The TPAR might also require a description of the services provided by the contractor. This helps in identifying the nature of the work undertaken.

Which industries are affected by the Taxable Payments Annual Report?

Many industries in Australia are subject to the TPAR requirement. Here's a breakdown:

Mandatory industries

• Building and construction: This includes all types of construction work, including renovation, plumbing, electrical and landscaping.

• Cleaning services: All commercial and residential cleaning services fall under this category.

• Courier and messenger services: Deliveries, parcel forwarding and similar services are included.

• Information technology (IT) services: Software development, network support, data processing and other IT services fall under this umbrella.

• Road freight services: This covers transportation of goods by trucks, vans and similar vehicles.

• Security services: This category includes security guards, private investigators and surveillance operations.

The TPAR is only required in these industries if certain services are performed:

• Legal services: This only applies to certain legal services, such as conveyancing and debt recovery.

• Medical and health services: Services such as transportation by ambulance and pathology testing may be included.

• Transport services: Taxi services, passenger coaches and limousines all require a TPAR in some cases.

In general, if your business makes payments to Australian residents for any of the services listed above and 10% or more of your business income for the financial year is from a relevant service, you're probably obligated to file a TPAR. Businesses based outside Australia do not generally need to file a TPAR for payments made to contractors within Australia, as the TPAR requirement applies to businesses and government entities registered in Australia – regardless of where they operate or where the contractors are located.

However, there are a few exceptions where foreign businesses might need to file a TPAR:

• If it has a permanent establishment in Australia: This involves a fixed place of business in Australia, such as an office or branch. In this case, the foreign business would be treated as an Australian entity for tax purposes and would need to comply with all Australian tax obligations, including the TPAR.

• If it pays contractors for services related to Australian real estate property: This includes services such as construction, cleaning and security services for Australian properties. Even if the foreign business doesn't have a permanent establishment in Australia, it may still need to file a TPAR for these types of payment.

• If it is withholding tax from payments to Australian contractors: If the foreign business doesn't have an ABN, and its payments to Australian contractors are subject to withholding tax, it may need to file a TPAR to report the withholding amount.

How to account for the Taxable Payments Annual Report

Here's how to properly account for the TPAR in your business:

Preparation

• Identify reportable transactions: Review your financial records to identify all payments made to contractors or subcontractors during the financial year for services under the scope of the TPAR (see previous section).

• Gather contractor information: Collect complete details of each reportable contractor, including name, ABN (if any), address and Australian resident status.

• Categorise payments: Classify payments by invoice or transaction type (e.g. wages, materials, rent) for accurate reporting.

• Track GST and withholding tax: Record the amount of GST included in each payment and any tax withheld if the contractor didn't provide an ABN.

Accounting processes

• Accounting software: Many accounting software programs include features to generate TPAR reports automatically.

• Manual calculation: If you're not using software, calculate the total annual payment per contractor, including GST and any withholding tax.

• Reconciliation: Double-check all information for accuracy and make sure it matches your accounting records and contractor invoices.

TPAR filing

• Deadline: File the TPAR electronically with the ATO by 28 August each year for the previous financial year (1 July to 30 June).

• Submission options: You can lodge (or submit) the report directly through the ATO portal; via your accounting software's TPAR function; or by sending a hard copy (although this is less common now).

• Recordkeeping: Maintain copies of the TPAR and supporting documentation for five years to comply with ATO record-keeping requirements.

Taxable Payments Annual Report exemptions

While the TPAR in Australia applies to many industries and transactions, there are some exemptions worth knowing about:

General exemptions

• Materials: Any payments to contractors for only materials – not labour – are exempt from the TPAR requirement.

• Government entities: Certain government entities are exempt from TPAR, such as those providing education, childcare, medical services, and others listed on the ATO website.

• Foreign entities without an Australian presence: Foreign businesses generally don't need to file a TPAR unless they have a permanent establishment in Australia or pay for specific services related to Australian property.

Industry-specific exemptions

• Specific types of service: Certain services within mandatory TPAR industries might be exempt, such as:

  • Certain legal services, such as family law and litigation
    
  • Some medical and health services provided by hospitals and registered practitioners
    

Government contracts

Payments made to contractors under certain government contracts may be exempt under specific regulations. These include:

Commonwealth Procurement Rules (CPRs)

• General rule: Payments made under contracts governed by the CPRs, where the contractor is performing the work within Australia, are generally exempt from the TPAR. This applies to most goods and services procured by the Australian government.

• Exceptions: Even under CPRs, exemptions may not apply if:

  • The contractor is a foreign resident (unless working on a specific project and holding a temporary tax resident visa).
    
  • The contract explicitly requires TPAR reporting.
    
  • The services provided fall under one of the mandatory TPAR industries (e.g. construction, commercial cleaning, IT).
    

State and territory procurement rules

• Similar framework: Most states and territories have their own procurement rules that are similar to the CPRs, often with analogous TPAR exemptions for government contracts. However, exemptions and specific conditions can differ, so businesses should check the relevant state/territory legislation or consult their procurement agency.
  

Other potential exemptions

• Payments to registered charities and public hospitals: These are generally exempt from TPAR reporting.

• Payments to individuals for personal services: Payments for services such as domestic cleaning, gardening or childcare in a personal capacity are exempt.

• Financial products and services: Payments for interest, dividends or other financial products are not subject to TPAR reporting.

Other considerations

• Independent contractors vs employees: The TPAR exemption applies to payments made to independent contractors – not employees. Distinguishing between the two can be complex, so proper classification is key.

• Subcontracting: If a government contractor subcontracts part of the work, the subcontractor might not be exempt from TPAR if they fall under a mandatory industry.

• GST and withholding tax: Even if TPAR reporting is exempt, GST and withholding tax rules still apply to government contracts as per established regulations.

What is the Taxable Payments Annual Report filing process?

Here's how the process of filing a TPAR can be done:

Electronically

• Gather information: Have your ABN, myGovID or AUSkey credentials as well as details of all reportable contractors ready.

• Access the ATO portal: Log in to the ATO online services for business space of the website using your credentials.

• Go to lodgements: Locate the "Lodgments" section and select "Taxable Payments Annual Report".

• Choose lodgement options: Select "New" to file a new report or "Amended" if updating a previous submission.

• Complete the TPAR form: Provide details about your business, each contractor who received payments, and the total payments made.

• Review and submit: Double-check the information and confirm your submission. You will receive a receipt electronically.

Paper lodgement (less common)

• Download the paper form: Obtain the "Taxable payments annual report" form (NAT 74109) from the ATO website.

• Complete the form: Fill in the form manually with the necessary details of your business and contractors.

• Attach supporting documents: Include required documentation, such as copies of invoices or payment summaries.

• Send the form: Send the completed form and documents to the specified ATO address.

Additional points

• Lodging deadline: Remember to file the TPAR by 28 August each year for the previous financial year (1 July to 30 June). Late lodgement penalties may apply.

• Drafts: The ATO portal allows you to save incomplete TPARs as drafts, which you can resume and finalise later.

• Lodgement confirmation: You will receive confirmation via email or SMS after successfully lodging the TPAR electronically.

• Seeking help: If you encounter any difficulties or require assistance, the ATO website offers helpful guides and contact information for further support.