Taxable Payments Reporting System - Reporting Exemptions for Certain Entities Determination 2019

The instrument relies on several defined terms that connect to the broader tax law framework. “Relevant GST turnover” is defined in clause 3 of the instrument. For an entity that has been making supplies for at least 12 months, it means the entity’s current GST turnover (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)). For entities that have been making supplies for less than 12 months, it means the entity’s projected GST turnover under the GST Act. This distinction matters because newer businesses may have to estimate their turnover, introducing some uncertainty when applying the 10% threshold. “Consideration” takes its meaning from the GST Act - broadly, any payment, act, or forbearance in connection with a supply, including money, property, or services. This is important because the de minimis test looks at the total value of consideration received by the entity during the reporting period that relates to supplies of the relevant service. If the entity receives non-monetary consideration, that must be valued for the test. “Supply” also has the GST Act meaning. “Reporting period” means a period described in paragraph 396-55(a) of Schedule 1 to the TAA that commences on or after 1 July 2019. Section 396-55 requires entities to prepare and give a report for transactions that happen during each reporting period, which is generally each financial year. The table in section 396-55 lists industries for which TPRS applies. Items 11, 12, 13, and 14 cover cleaning services, courier services or road freight services, security, investigation or surveillance services, and information technology services respectively. The instrument does not define those service types precisely; they take their ordinary industry meaning, but the ATO may issue guidance. The core concept of the exemption is a de minimis rule: if the total consideration for supplies of the relevant service in the reporting period is less than 10% of relevant GST turnover, then the entity does not have to report any individual transaction of that type, provided no other TPRS item applies and the entity has not opted in. However, the 10% test is applied per service category, not overall. An entity could be below 10% for cleaning but above for security, and would be exempt only for cleaning. The test uses total consideration received during the reporting period that relates to supplies of that service type. This means that even if a single transaction is large, if the total consideration for that service category is under 10% of turnover, the exemption applies to all transactions of that type. Conversely, if total consideration exceeds 10%, no exemption is available for any transaction of that type, even if individual payments are small. The entity can choose to opt in to the reporting requirement - if it does so before the report due date (or within further time allowed), the exemption does not apply. Giving a report for the transaction is sufficient evidence of having made that choice. This opt-in mechanism allows entities that want to report for their own purposes (for example, to provide evidence of payments to contractors) to do so despite the exemption. The instrument also repeals earlier determinations. The two repealed determinations were deemed to have been made under the Black Economy Taskforce Acts mentioned. Their repeal is effective from the commencement of this instrument, creating a single unified regime.

The primary class of entities affected are those that hold an Australian Business Number (ABN) and that supply, or have supplied on their behalf by contractors or subcontractors, cleaning services, courier or road freight services, security/investigation/surveillance services, or information technology services. The entity must be required under section 396-55 to prepare and give a TPAR for transactions in those service categories. That is, they must be businesses that make payments to contractors for those services in the ordinary course of their business. The exemption is designed to benefit entities for which these services are not their core business. For example, a retail store that hires a cleaner for a few hours a week would likely have total cleaning payments well under 10% of its turnover, and thus would not need to report those payments. Similarly, an accounting firm that occasionally engages an IT contractor to fix a server might be exempt. However, a cleaning company that supplies cleaning services as its main business would almost certainly exceed the 10% threshold and would still need to report payments to its subcontractor cleaners. The instrument does not distinguish between entities based on size in absolute terms; it only applies the proportionate test. So a large construction company with a small security arm might still be exempt for security payments if they are under 10% of its overall turnover. But a small IT consultancy that only provides IT services and subcontracts some work would have 100% of its turnover from IT supplies and thus no exemption. Affected entities must have an ABN. Those without an ABN are outside the TPRS framework entirely or face different rules. The instrument also indirectly affects the contractors receiving payments. If the entity is exempt, it does not report the payments to the ATO, meaning those payments are not subject to the data-matching and compliance monitoring that TPRS provides. That could reduce the likelihood of ATO scrutiny of the contractor’s income. Contractors might prefer to be reported as it reduces their own compliance risk, but they have no standing to compel the entity to report. The instrument also affects tax practitioners and software developers who need to update their systems to determine when filing a TPAR is not required. Entities that fall below the 10% threshold but have transactions that also fall under another TPRS item (e.g., building and construction - item 5 of the table) are not exempt because of the condition in clauses 1(b), 3(b), 5(b), and 7(b) that the transaction is not described in another item. This means that a builder who also provides some security services as part of a contract must still report if the security service transaction is also a building and construction transaction (which it likely is if it’s part of an integrated contract). The instrument essentially carves out only those transactions that are purely of the exempt service types and not captured by any other TPRS item. This could create classification difficulties for mixed contracts.

The central duty is the obligation under section 396-55 of the TAA to prepare and give a taxable payments annual report to the Commissioner. The instrument does not create any new duties; it removes a duty for entities that satisfy the exemption conditions. For those entities, the duty to report is suspended (or rather, does not arise) for transactions of the relevant type. The entity has a right to choose to be subject to the reporting requirement even if the exemption conditions are met. Clause 1(c), 3(c), 5(c), and 7(c) each provide that the exemption does not apply if the entity has chosen, before the time by which the report is required (or within further time allowed by the Commissioner), to be required to prepare and give a report for the transaction. The mechanism for making that choice is not prescribed, but the instrument states that giving a report for the transaction is sufficient evidence of the making of the choice. This means that if an entity files a TPAR including a transaction that would otherwise be exempt, the ATO will treat that as an exercise of the opt-in right. Entities should be careful: once a report is given, they cannot later claim the exemption for that transaction. The choice must be made before the report due date or within any further time allowed. The Commissioner likely has the power to extend the time under general TAA provisions, but the instrument recognises that in clause 1(c) by saying “within such further time allowed by the Commissioner”. The entity also has a duty to correctly determine whether the 10% threshold is met. This requires tracking the total consideration received for each service type during the reporting period, and calculating relevant GST turnover as at the end of the period. For entities that have been operating less than 12 months, this involves a projected GST turnover calculation, which may require estimation. The entity must also ensure that the transaction is not described in another TPRS item. If it is, no exemption is available. This duty is not trivial; it requires the entity to know the full table in section 396-55, which includes items for building and construction, road freight (item 12 covers road freight, but item 6 also covers road freight for some entities? Actually the table has item 6 for road freight transport services for certain entities; but item 12 is specifically for courier and road freight. There could be overlap with item 6 for some transport providers. The instrument does not exempt if another item applies, so careful analysis is needed. The entity has no duty to report payments it does not make - only payments with consideration. There is no duty to report if consideration is zero. The entity also has rights under the TAA generally, such as the right to seek a private ruling on whether the exemption applies, and the right to object to an assessment if the ATO determines that the exemption was incorrectly claimed. The instrument does not affect those rights. Another right is the ability to apply for further time from the Commissioner to opt in, but the instrument does not specify a process. In practice, entities should document their calculations and decisions to rely on the exemption.

The instrument itself does not create any penalties. However, the underlying TAA contains significant penalties for failure to lodge a TPAR where required, or for lodging a false or misleading TPAR. The relevant penalty provisions are in Division 286 of Schedule 1 to the TAA (failure to lodge statements) and Division 284 (false or misleading statements). If an entity incorrectly claims the exemption - for example, because it miscalculated the 10% threshold or overlooked another TPRS item - and does not lodge a TPAR, it may be liable for a failure-to-lodge penalty. The base penalty amount under section 286-75 is one penalty unit (currently $313) for each period of 28 days that the statement is late, capped at 5 penalty units. However, for a TPAR, the cap may be higher if the entity is a significant global entity. In addition, if the failure is considered intentional or reckless, the penalty can increase under administrative penalty provisions. There are also penalties for making false or misleading statements to the Commissioner, which could arise if the entity later claims the exemption after having lodged a TPAR (and thus opted in). The ATO enforces the TPRS through data matching and audits. The ATO can cross-reference TPAR data with contractor tax returns and BAS. If an entity does not report but the ATO finds that the conditions for exemption were not met, the ATO may issue a failure-to-lodge notice and penalties. The instrument provides a defence: if the entity can show it satisfied the conditions, it is not required to report. The burden would be on the entity to demonstrate compliance with the de minimis test and the other conditions. Practically, entities should keep records of consideration received for the relevant service types and their GST turnover calculations. The instrument also interacts with the promoter penalty laws? Probably not directly, but entities that encourage others to incorrectly claim the exemption could face promoter penalties under Division 290. The repealed determinations (from the 2018 Black Economy Acts) no longer apply; those earlier instruments may have had different threshold tests or other conditions. Any entity that relied on those earlier determinations and did not lodge a TPAR for the 2018-19 year (before 1 July 2019) may still be protected if they met the conditions of those determinations. But for reporting periods starting on or after 1 July 2019, only this 2019 determination applies. The ATO has general enforcement powers including access to premises, requiring information, and issuing audits. Because the TPRS is a compliance tool for the black economy, the ATO is likely to scrutinise industries where hiding payments to contractors is common. The exemption removes the requirement for small incidental service providers, but the ATO may still check that the de minimis condition is correctly applied. Entities cannot rely on the exemption if they have not maintained adequate records of consideration received and turnover. The instrument does not contain a review mechanism; any dispute about whether the exemption applies would be handled through standard objection processes under Part IVC of the TAA.

The instrument is a legislative instrument under subsection 396-70(4) of Schedule 1 to the TAA. That subsection allows the Commissioner to determine that an entity is not required to comply with section 396-55 in relation to a specified class of transactions. This instrument exercises that power. It operates within the broader TPRS framework set out in the TAA. The TPRS was originally introduced for building and construction services and has been progressively extended to cleaning, courier, security, IT, and road freight services. The instrument also interacts with the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 and the Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018. Those Acts inserted transitional provisions (subitem 3(5) in each) that allowed the Commissioner to make determinations immediately, but those determinations were deemed to be made automatically on commencement of those Acts unless a formal instrument was made. This 2019 determination repeals those deemed determinations under the power granted by those Acts. So the instrument effectively replaces the earlier transitional exemptions with a permanent regime. The definitions in the instrument borrow heavily from the GST Act, particularly for “consideration”, “supply”, “current GST turnover”, and “projected GST turnover”. This means that any changes in the GST Act definitions will automatically affect the operation of this instrument, unless the instrument is amended. The A New Tax System (Australian Business Number) Act 1999 provides the definition of ABN; entities must hold an ABN to be eligible for the exemption. The instrument does not interact directly with the Corporations Act, but the concept of “entity” in the TAA includes companies, partnerships, trusts, and individuals. The instrument also interacts with the Tax Agent Services Act 2009 only insofar as tax agents may need to advise clients on applying the exemption. Importantly, the instrument does not apply if a transaction is described in another item of the table in section 396-55. That table currently includes items for building and construction, road freight transport services (item 6), and others. For example, a courier service that also involves road freight transport may be caught by item 6, which has no exemption. Similarly, an IT service that is part of a building and construction contract (e.g., installing smart home technology) could also be an item 5 transaction. The exemption only applies when the transaction is solely of the type in items 11-14 and no other item picks it up. This interaction can create complexity for mixed supply contracts. There is also interaction with state and territory laws regarding contractor reporting, but the TPRS is a federal scheme. The instrument does not affect any state reporting requirements. The instrument is also a legislative instrument subject to the Legislation Act 2003, including registration, tabling, and sunsetting provisions. It was registered and tabled; it will sunset after 10 years unless remade.

The instrument itself has not been amended since its making on 3 June 2019. However, it repealed two earlier determinations. The first repealed determination was made under subitem 3(1) of Part 2 of Schedule 2 to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018. That Act was passed in 2018; the determination under it was taken to have been made on a date specified in the Act, and it would have provided an exemption for certain entities from reporting under item 11 (cleaning) and possibly others. The second repealed determination was made under paragraph 3(1)(a) of Schedule 2 to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018, which extended TPRS to courier, security, and IT services. Those determinations were temporary measures pending the making of a formal legislative instrument. They were repealed by operation of subitem 3(5) in each Act, which allowed the repeal to occur when a formal determination was made. The 2019 instrument thus consolidates and replaces those earlier exemptions. There may have been differences in the earlier determinations: for example, they may have had different de minimis thresholds or different conditions. The instrument notes that those earlier determinations are repealed; no saving provisions are included. Therefore, for any reporting period starting on or after 1 July 2019, only this instrument applies. For reporting periods before 1 July 2019, the earlier determinations may still have effect if they were in force at the time. The instrument has not been amended by any subsequent legislative instruments. It remains in force as made. The Commissioner could amend or repeal it at any time by making a new determination under subsection 396-70(4). There have been no known amendments to date. The TPRS table items have also not been amended to include new categories since 2019, so the instrument’s scope has remained static. However, in 2021, the Government consulted on extending TPRS to other industries (such as waste removal, road freight transport already covered?), but no legislative changes affecting this instrument have been enacted. The instrument is also subject to the sunsetting regime under the Legislation Act 2003; it will automatically repeal on 1 April 2029 (10 years after commencement) unless it is remade or continued. That is still some years away. Practitioners should monitor for any future instruments that may replace or vary these exemptions. The repeal of the earlier determinations means that any reliance on the transitional provisions for the 2018-19 year may need to be reassessed if the entity did not lodge a TPAR for that year based on those determinations. The instrument itself does not provide a grandfathering clause for the repealed determinations.

There is no litigation history directly concerning this instrument. Being a legislative instrument that provides an exemption from a reporting obligation, it is unlikely to be the subject of court proceedings unless the ATO disputes an entity’s reliance on it, or an entity challenges the ATO’s interpretation of the conditions. As of the knowledge cutoff, no reported cases have cited this determination. However, there have been cases on the TPRS framework more broadly, such as Commissioner of Taxation v. McConnell (2012) and various AAT decisions regarding penalties for failure to lodge TPARs. Those cases may provide guidance on how the TPRS provisions are interpreted, but they do not address this specific exemption instrument. Potential litigation could arise over the interpretation of “relevant GST turnover” and the calculation of the 10% threshold. For example, disputes over what constitutes “current GST turnover” for an entity that has made supplies for at least 12 months, and whether certain non-GST supplies are included. The GST Act definitions are complex, and the instrument does not provide any additional guidance. Litigation could also arise over what constitutes “cleaning service” or “security, investigation or surveillance service”. The instrument does not define these terms, and ordinary meanings may be contested. For instance, does a cleaning service include garbage removal, carpet cleaning, or window cleaning? Is a security service limited to guarding or does it include alarm monitoring? The AAT or courts would need to determine the scope. If the instrument is challenged on administrative law grounds (e.g., alleged invalidity for failing to meet the requirements for a legislative instrument under the Legislation Act 2003), that could lead to litigation, but no such challenge appears to have been brought. The instrument appears to be properly made. Another potential area of dispute is the opt-in mechanism. The instrument provides that giving a report for a transaction is sufficient evidence of the choice to be required. This could lead to disputes if an entity inadvertently files a TPAR for a transaction that would have been exempt, then later seeks to argue it did not intend to opt in. The ATO would likely treat the filing as an election, and the entity would have to demonstrate that the filing was in error, perhaps under a mistake of fact or law. No such case has arisen. The instrument also has no privative clause; decisions of the Commissioner regarding the exemption (such as whether further time was allowed) may be reviewable under the Administrative Decisions (Judicial Review) Act 1977 or the AAT Act. But given the limited scope, litigation is rare. The instrument’s repeal of earlier determinations could theoretically be challenged if those determinations conferred rights that were then extinguished, but the Acts that created those determinations also provided for their repeal, so any challenge would more likely be against the Acts themselves, not this instrument.

Several provisions in this instrument can trap the unwary. First, the de minimis test uses total consideration received during the reporting period relating to supplies of the relevant service. That is an aggregate test, not a per-transaction test. An entity might have a single large cleaning contract that is under 10% of turnover, but if there are multiple cleaning contracts, the total could exceed 10%. Conversely, an entity might have many small cleaning contracts that are individually trivial but together exceed 10%. The test is cumulative. Second, the definition of “relevant GST turnover” differs depending on how long the entity has been making supplies. For new businesses, it uses projected GST turnover. This requires a forward-looking estimate, which may be uncertain and could change retrospectively. If actual turnover ends up higher or lower than projected, the entity needs to reassess whether the exemption applied correctly. The instrument says “as at the end of the reporting period”, suggesting the relevant turnover is determined as at that date. For new businesses, that is the projected turnover as at that date, which may have to be revised. Third, the exemption is lost if the transaction is also described in another item of the table in section 396-55. This is a significant trap. For instance, a transaction that involves both cleaning and building maintenance might be described in item 5 (building and construction) as well as item 11. If so, the exemption does not apply. Entities need to consider the character of the entire transaction, not just the service component. The fact that the entity supplies a cleaning service is not enough; the specific transaction must not be caught by any other item. Fourth, the entity can opt in to reporting even if below the threshold. But the method of opting in is not clearly prescribed beyond giving a report. If an entity gives a report for a transaction that would otherwise be exempt, it is treated as having chosen to be required. This means that if an entity mistakenly files a TPAR for an exempt transaction, it cannot later claim the exemption for that transaction. The instrument does not provide for a withdrawal of the choice. Fifth, the exemption applies per service category separately. An entity might be exempt for cleaning but not for IT, if IT payments exceed 10%. But if the entity makes a transaction that includes both cleaning and IT services in a single contract, and that transaction is not described in another item, the entity would need to apportion consideration to determine which part qualifies. The instrument does not address how to apportion consideration between different service types when they are supplied together in a single transaction. The TPAR reporting system generally requires reporting for each transaction, so if the consideration is mixed, the entity may need to report the entire transaction if any part is not exempt. Sixth, the instrument uses “including by a contractor or subcontractor on behalf of the entity” in the condition for the 10% test. This means that if the entity itself does not directly supply the service but engages a contractor or subcontractor, the consideration received by the entity for those supplies is still counted. This ensures that a main contractor cannot avoid reporting by subcontracting all the work. However, this also means that the entity must track payments it receives that relate to those subcontracted supplies, which may require detailed recordkeeping. Seventh, the exemptions are only for entities with an ABN. An entity that does not have an ABN is not eligible, but under TPRS, an entity without an ABN may still be required to report? Actually, section 396-55 applies to entities generally; but the exemption only for those with ABN. So an entity without an ABN cannot claim the exemption. Eighth, the instrument does not provide a safe harbour for small businesses in terms of dollar amount; it is purely proportional. A business with a very low turnover might have cleaning payments that are under $1,000 but still exceed 10% of turnover if its turnover is very small. Such a business would not be exempt. Finally, the repeal of earlier determinations means that for the 2018-19 year, the earlier determinations may still apply, but for 2019-20 onwards, this instrument is the only source of exemption. An entity that relied on the earlier determination for the 2018-19 year and did not lodge a TPAR may still be protected, but only if it met the conditions in that determination. Those conditions may have been different. The instrument does not clarify this; entities should check the earlier instruments. The instrument also does not provide any transitional rules for entities that have already lodged TPARs under the previous regime.

Complying with this instrument is essentially a matter of correctly determining whether the exemption applies and, if so, doing nothing (that is, not lodging a TPAR for the exempt transactions). However, the entity must be able to demonstrate that the conditions were met. The following steps are recommended. First, identify all payments made to contractors during the reporting period that are for cleaning, courier/road freight, security/investigation/surveillance, or IT services. This requires proper classification of each payment. The entity should maintain a register of contractor payments with a description of the service. Second, for each of the four service categories, calculate the total consideration received by the entity during the reporting period that relates to supplies of that service. Note that this is consideration received by the entity, not paid out. The entity must identify all income it received that is attributable to it supplying the relevant service, including where a contractor or subcontractor performed the work on its behalf. This may require tracking revenue streams and possibly apportioning mixed contracts. Third, determine the entity’s relevant GST turnover as at the end of the reporting period. For entities with at least 12 months of supplies, this is the current GST turnover (essentially total GST-inclusive or GST-exclusive sales depending on registration). For newer entities, it is projected GST turnover. The entity should calculate this figure using the same method used for GST reporting. Keep records of the turnover calculation. Fourth, for each service category, compare the total consideration received for that category to the relevant GST turnover. If the consideration is less than 10% of turnover, the entity may be eligible for exemption. But there is a further condition: the transaction must not be described in another item of the table in section 396-55. For each transaction, check whether it also falls under another TPRS item (e.g., building and construction, road freight transport, etc.). If so, the exemption does not apply to that transaction, even if the total consideration for that category is under 10%. This may require analysing the nature of each contract. Fifth, decide whether to opt out of the exemption. The entity may choose to report even if exempt. If it does not want to report, it must ensure that no report is lodged for any transaction that would be exempt. If it lodges a TPAR that includes such a transaction, it will be treated as having opted in. Sixth, document all calculations and decisions. If the ATO later audits the entity, the entity will need to demonstrate that the conditions were met. Keep records of the consideration received for each service category, the turnover calculation, and the analysis of whether other TPRS items apply. Seventh, note that if the entity also makes payments that are reportable under other TPRS items (e.g., building and construction), it must still lodge a TPAR for those payments. The exemption only removes the requirement for the specified service categories when the conditions are met. The entity may still need to file a TPAR for other transactions. If the entity is exempt for all categories, it may not need to lodge any TPAR at all for that reporting period. Eighth, be aware of timing. The decision on whether to opt in must be made before the report due date. The TPAR for a financial year is due by 28 August following the end of that year (for most entities). The entity should make its assessment well before that date. If it is uncertain, it may wish to seek a private ruling from the ATO. Finally, reconsider the exemption each year. The 10% test may change from year to year as turnover and service income change. Do not assume the exemption applies indefinitely. The instrument does not provide a multi-year election; it must be tested each reporting period. If the entity’s circumstances change and the consideration for a service category exceeds 10%, the entity must start reporting payments for that category in that year. Failure to do so could result in penalties. The instrument does not require the entity to notify the ATO if it starts or stops claiming the exemption. It simply determines whether the requirement to report exists. The entity should maintain a permanent file of its exemption analysis.