ATO Audit warning to contractors

Using data from the Taxable Payments Reporting System (TPRS) the Australian Taxation Office has discovered that more than $172 billion in payments made to contractors has not been properly declared. The ATO is using this data to contact contractors in the cleaning, road freight, building and construction, courier, information technology, investigation, surveillance, and security industries to follow up on potentially undeclared income through the TPRS. According to the ATO, in the 2019-2020 year more than 158,000 businesses reported their contractor payments; however it’s now using TPRS data to ensure payments have been declared by all contractors. Peter Holt, Assistant Commissioner at the Australian Tax Office, said that TPRS gave the ATO a clear insight into payments made to contractors in these types of industries. He added that TPRS data, in conjunction with the ATO’s advanced data and analytics capabilities, means they are now easily able to detect unreported income. While TPRS data is being used by the ATO to draw attention to income earned from contracting work, it also gives the ATO the ability to check that businesses are using valid Australian Business Numbers (ABNs) and that they’re registered for GST if required. Businesses who don’t report, or deliberately under-report their income to the ATO contribute to the shadow, or underground economy, with the ATO estimating that every year these types of businesses cost the community in excess of $6.7 billion in unpaid taxation. Mr Holt said that honest courier drivers do everything right; they pay their road tolls, rego, and their taxes, while dishonest drivers have a perceived unfair advantage over their honest competitors. ATO Case Study A delivery truck driver by the fictitious name of ‘John’ was used by the ATO as an example. For his Monday to Friday job, John earned an income of $80,000. He also earned contractor income in the amount of $40,000 by delivering garden supplies on weekends. The problem the ATO has with John is that he only reported his $80,000 salary on his tax return, completely omitting the $40,000 he received in contractor payments. When the courier company who contracted John provided the ATO with a Taxable Payment Annual Report, it reported the $40,000 paid to John. It was a simple matter for the ATO to cross-match the TPRS data with John’s tax return and discover that this income had not been declared. John then received a letter from the ATO requesting information about the discrepancy, with a reminder that this income would need to be declared. An amendment was lodged by John and the difference in tax owed was paid. How the ATO Handles Discrepancies When a discrepancy is found, the ATO will contact either the taxpayer direct, or their tax professional, to check that all contractor payments reported through the TPRS have been declared via their tax return. With tax time just around the corner, there will always be a small number of taxpayers who find themselves under the scrutiny of the ATO. An ATO tax audit can be an extremely stressful (and sometimes costly) experience, so if businesses are looking to avoid an ATO tax audit they should ensure they declare all income earned during the course of the financial year. The ATO is urging contractors who have either under-declared or failed to declare income received from contract work to ask their registered tax professional for help, or to immediately lodge an amendment request. The information in this article is general in nature and might not be right for your circumstances. Please arrange a meeting with one of our Accountants to discuss your particular needs. Accountants 2 Business Ph (07) 3823 2344