Payments to contractors

Understand when you have to withhold tax from payments to contractors, when you need to lodge a TPAR and learn more about the differences between an employee and contractor.

ABN/PAYG non compliance

  • If you are paying contractors for their services make sure you get a tax invoice with a valid ABN.
  • Under the rules you are required to withhold tax from payments made to contractors unless you have a valid ABN.
  • From 1 July 2019 the rules changed to deny a tax deduction for payments made to contractors if you do not comply with the withholding obligations.

Taxable payments annual report (TPAR)

You are required to lodge an annual TPAR report if your business primarily operates in any of the following services and you pay a contractor to provide these services on your behalf:
  • Building and construction - includes plumbing, architectural, electrical, plastering, carpentry, engineering and a wide range of other activities.
  • Cleaning - includes interior and exterior cleaning of structures, vehicles, machinery and cleaning for events.
  • Courier or road freight - includes delivery of items or goods (such as parcels, packages, letters and food) by motor vehicle, bicycle or on foot, the transportation of freight by road, truck hire with driver, and road vehicle towing services.
  • Information technology - includes writing, modifying, testing or supporting software to meet a client's needs, whether on site or remotely through the internet.
  • Security, investigation or surveillance - this includes patrolling and guarding people, premises or property; watching or observing an area and monitoring security systems; and investigation specifically related to security and surveillance, not just information gathering.
For example, if your business provides courier services and you pay a contractor to carry out courier services for your business, you will need to report these payments in your TPAR. You do not need to report payments for materials only. TPAR reports are due to be lodged annually by 28th August.

Employee or contractor?

  • An employee works in your business and is part of your business. As an employer, you are required to comply with the relevant laws when hiring employees.
  • A contractor is running their own business. You may need to pay super for your contractors if they work within and are considered part of your business.
  • When you hire a worker, make sure you are clear if you are hiring them as an employee or contractor. Their classification will affect your tax, super and other obligations.

Are you looking for some help with your record keeping?

Would you like to:
  • Save time on your record keeping so you have more time to focus on other aspects of your business?
  • Reduce the stress around meeting your GST and payroll reporting obligations?
  • Have reliable data and reports to help you to understand how your business is performing, manage your cash flow, make more informed decisions and improve your business?
I’m Sharon, a registered BAS agent with more than 20 years' experience in the industry.Get in touch to find out how I can support you and your business to stay on top of your numbers to run a successful business.
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