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Contractors omitting income remains a major compliance focus for the ATO, with recent data matching revealing that some contractors are still incorrectly reporting or omitting contractor income, the ATO said in a recent update.

"You need to report all your income, including payments made by businesses for your contracting work," the ATO said.

The ATO reminded contractors that as part of the taxable payments reporting system (TPRS), businesses lodge a taxable payments annual report (TPAR) to report payments made to contractors that provide certain services. These services include building and construction, courier, cleaning, information technology, road freight and security, investigation or surveillance.

The ATO reminded contractors that if they provide any of these services, the businesses that contract them will report these payments to the ATO on their TPAR.

"You need to include this income on your tax return," it said.

"Through data matching, we are seeing some contractors incorrectly reporting or omitting contractor income."

The ATO warned contractors that where it suspects a contractor has omitted TPRS income on their tax return, they may contact them or their tax professional to request them to amend the tax return.

"[We may also] contact you or your tax professional via phone call to better understand your circumstances and potentially request you amend your tax return," it said.

"If you don’t take action, we may conduct a review and audit of your business. Penalties and interest may apply."

To help contractors report their income correctly, the ATO includes information reported to it about contractor payments that were paid as part of its pre-filling service and its reported transactions service in the ATO online platform.

"These records give you transparency about the data that has been provided to us about your business transactions," the ATO said.

The ATO gave an example of Mike, a carpenter who operates his business as a sole trader.

Mike subcontracts to multiple builders and completes his tax return himself.

"As he provides building and construction services, the builders must report the payments they made to him during the 2024 income year. They must do this by lodging a TPAR with the ATO by 28 August 2024," the Tax Office said.

"Mike does not use the pre-filled TPAR amounts for his tax return. This results in Mike not including all his contractor payments in his reported income. On review, the error was identified, and his 2024 assessment was amended to include the missing income. Mike was required to repay the tax shortfall and may be subject to penalties and interest."

The ATO said in the following year when Mike is completing his tax return, he can review and accept the pre-filled TPAR amounts.

"These will auto fill into his tax return, making it easy to ensure he has included all his contractor payments in his income," it said.

Miranda Brownlee
26 February 2025
accountantsdaily.com.au