Tax Compliance Issues for the Building & Construction Industry

The Federal and State based laws can often be complicated especially for independent and small construction companies. It’s important to be aware of your obligations so you can avoid any mistakes that might lead to serious compliance issues. Some of the issues include managing subcontractor payments, payroll tax, and handling GST.

Subcontractor Payments and Reporting

Managing subcontractor payments is a significant issue for most building companies as a ‘contractor’ may be considered a ‘worker’ or ‘employee’ for many state-based taxes.

For example, in Queensland, some contractors are considered ‘workers’ for WorkCover purposes, even if they have their own ABN. Therefore, businesses must ensure they are compliant with the requirements set out under the Workers’ Compensation and Rehabilitation Act 2003.

If you pay independent contractors mainly for their labour, they are considered employees for superannuation guarantee (SG) purposes, and you may need to pay super to fund for them, even if they have their own ABN.

Additionally, businesses in the building and construction industry must report payments made to contractors in a Taxable Payments Annual Report (TPAR) which is due for lodgement by 28 August each year.

Payroll Tax Issues

Alongside determinations with respect to WorkCover, and superannuation, businesses engaging with contractors need to consider whether the contractor is considered an ’employee’ for payroll tax purposes.

According to the Queensland Revenue Office, most arrangements with contractors involving services are considered relevant contracts for payroll tax purposes, unless an exemption applies. At least one of the following exemptions needs to apply for your contractor payment to be exempt from payroll tax:

1. 1. Services provided for no more than 90 days in a financial year
   2. Services required by your business for less than 180 days in a financial year
   3. Services performed by 2 or more people
   4. Services ancillary to the supply of goods
   5. Services not ordinarily required by your business
   6. Services approved by the Commissioner as exempt
   7. Services provided by an owner-driver
   8. Services relating to door-to-door sales
   9. Services relating to selling insurance

GST

Businesses must understand how GST applies to their services and materials. In particular, dealing with mixed-use developments and determining the appropriate GST treatment for projects with both residential and commercial elements.

It is also important that businesses engaging with suppliers and subcontractors are checking the validity of their suppliers ABN to ensure:

1. 1. Suppliers have provided a valid ABN that belongs to them.
   2. That the supplier is registered for GST and allowed to charge GST.
   3. A valid tax invoice has been received.

Most online accounting software programs such as MYOB will have an inbuilt ABN checker to allow users to see if their customers’ ABN is valid or invalid. However, the easiest way to check is via the ABN Lookup website.

If an ABN is invalid or not supplied, you must not pay GST, and instead, you must deduct ABN Withholding Tax @ 47% and remit this on the next BAS, and complete a Payment Summary for the payee.

If a contractor is not registered for GST, they cannot charge GST, even if they’re including the cost of materials. You should speak to your supplier to have them revise their invoices.

Building and construction companies must navigate a range of tax compliance challenges, from subcontractor reporting to managing GST, superannuation and payroll tax obligations. By staying informed and working with your tax professional, businesses can effectively manage their tax obligations and avoid costly compliance issues.

For More Information

For more information on the above tax implications for the building and construction industry, please feel free to contact your Archer Gowland Redshaw adviser on (07) 3002 2699 | info@agredshaw.com.au