ATO targeting contractors

Contractors beware, with the ATO having now received the taxable payments annual report from more than 158,000 businesses for the 2019-20 income year, it is now data-matching this information with what has been reported in the tax returns of these contractors. This captures contractors that have performed services including couriering (including food delivery), cleaning, building and construction services, road freight, information technology, security, investigation surveillance services. Discrepancy letters will be sent out at the first instance.

With a majority of businesses employing contractors having reported their taxable payments for the 2019-20 income year, the ATO is now using that data to target individual contractors. By way of reminder, the taxable payments reporting system involves any businesses that pay contractors for couriering (including food delivery), cleaning, building and construction services, road freight, information technology, security, investigation surveillance services.

“Honest courier drivers do the right thing: they pay their rego, pay their road tolls, stick to the speed limit, and pay their taxes. It’s not fair that some dishonest drivers get to skip the ‘toll booth’ and get an advantage over their honest competitors.”

The ATO is now using this data to contact contractors or their tax agents to ensure that they have declared all their income including that from part-time work. Along with the failure to report income for individual contractors, the ATO is also checking the GST registration status of contractors that are businesses to ensure relevant obligations are met.

In relation to individuals, the ATO is using sophisticated analytics to match the information provided by businesses in the taxable payments annual report to the figures provided on the tax return of the individual contractors. Remember, the taxable payments annual report includes information such as the contractor’s ABN, name, address, and gross amount paid for the financial year. Where a discrepancy is identified, the ATO will send a letter in the first instance.

For individuals that have inadvertently forgotten to include their income from contracting, an amendment can be lodged for the relevant tax return to correct the mistake. The easiest and quickest way to do this is through myGov. Paper amendment forms can also be lodged although the process will take longer, according to the ATO, it may take up to 50 business days to process. Alternatively, if you lodged your initial return through a tax agent, they are able to complete an amendment to the return on your behalf.

While it appears that the ATO will not initially apply any penalties in relation to the under-reporting of contracting income, and taxpayers will only need to pay any additional tax owed. It is likely that those taxpayers that do not respond to the initial ATO letter and lodge the required amendment may have penalties imposed at a future date. As a reminder, for false and misleading statements made on tax returns that is not reasonably arguable and result in a shortfall amount, the base penalty is 25% of the shortfall amount for failure to take reasonable care and goes all the way up to 75% of the shortfall amount for intentional disregard.

In addition to the penalties above, the ATO also has the option to apply a shortfall interest charge in instances where a tax return is amended and the tax liability increases. The interest charge is updated every quarter and for the current quarter (April-June 2021) it is 3.01%. This percentage is applied to the shortfall amount for the period between when the tax would have been due and when the assessment is corrected.

Need to lodge an amendment?

If you’ve received a letter from the ATO regarding your contracting income or have realised that you have inadvertently forgotten to include your contracting income in your 2019-20 income tax return, we can help you work out what should be included in your amended return. Contact us today for expert help and advice.