The Australian Government has chosen to simultaneously introduce three significant tax changes that directly affect the Australian Construction Industry. See what those big tax changes are and how they will affect you.
According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.
As of July 1, 2012, the construction industry will be hit with the implications of:
- Carbon Tax
- Mining Tax
- Compulsory reporting of subcontracting arrangements
This is a time when the government has already withdrawn support from those in the building and construction industry through:
Eliminating the free home insulation scheme.
Not continuing or increasing the School Building and Renovations program.
Being extremely inconsistent on when and if they are going to subsidise solar.
Taking longer than expected to roll out the National Broadband Network (a major infrastructure project consuming huge construction industry resources)
It has also come at a time when the Federal and State Governments are applying increasing requirements for builders to build green home and green renovations such as Victoria’s recent upgrade to a minimum 6 star rating for new homes at the same time that consumers are trying to build bigger homes with smaller budgets.
The Carbon Tax and the Construction Industry
Service Central has already published a review of how the Carbon Tax will affect the Construction Industry here, however let’s go over the key points once again.
Manufacturing the materials used in construction of new homes and renovations is extremely carbon intensive. As a result the carbon tax will add thousands of dollars of new costs to a new home. The HIA estimates that with the introduction of carbon tax the price of a new home will increase by between 0.8% and 1.7%.The Allen Consulting Group have released a carbon price mechanism report that estimates that the carbon tax will add around $3,821 to its model two storey detached brick veneer 200m2 house.
The Allen Consulting Group report found that in building a two storey home in NSW you would see increases in a broad variety of building costs, including:
- Direct Energy: 6.8%
- Aluminium: 4.1%
- Bricks: 4%
- Concrete: 3.2%
- Steel: 3%
- Carpet: 2.6%
- Paint: 1.5%
- Timber: 1.5%
- Glass: 1.1%
- Plasterboard: 1%
The Mining Tax and the Construction Industry
Whilst the Mining Tax is not directly related to the Construction Industry, the Government’s Mining Tax will increase the costs to an industry that supplies materials to Australia’s Construction Industry.
The mining tax that is set to commence from July 1 2012, imposes on select sectors of the Australia’s Mining Industry a 30% tax on extraordinary profits, specifically in the coal and iron ore sectors.
Similar to the Carbon Tax, this Mining Tax could have a flow-on effect to the Construction Industry that causes price increases in building materials and construction costs. An increased cost of production in the coal industry could lead to even further increases in the cost of Direct Energy as a significant proportion of Australia’s electricity is produced using coal. Building products that use a lot of energy in their production such as aluminium, steel and glass could be hit hard.
Targeting the iron ore sector also could have a direct flow-on to the cost of steel, a major component in the manufacture of Australian homes.
Tax Office targets Construction Industry in Sub-Contractor Crackdown
The third prong in the Government’s three-prong attack on Australia’s Construction industry is a significant crack-down on payments to subcontractors by builders with the introduction of mandatory reporting to the ATO of all payments made to subcontractors.
The new tax regime starts on July 1, 2012, and requires builders to report to the tax office all of the following:
The details of sub-contractors used by the builder.
The ABN of each subcontractor.
The exact amounts paid to each subcontractor.
It is proposed that the ATO will be using this information to data-match against the tax returns of each subcontractor. It is possible that discrepancies in the amounts reported by the builder and the subcontractors could lead to further scrutiny of their accounts by the Australian Tax Office.
The ATO has also indicated that it may share this information with various State and Territory authorities that could, for example match with payroll tax and workers compensation payment records. Should this information also find its way into the hands of construction industry run superannuation and insurance schemes, significant additional costs could be imposed on small businesses.
Accountants have said that this extra reporting requirement will cost builders on average of $300-$500 per year extra in compliance costs. There are also risks that builders will be hit with extra costs as a result of increased audits from the ATO of their businesses and the businesses of their subcontractors. Furthermore, subcontractors may seek to increase their rates to builders as a result of the extra risk of the builders reporting their payments directly to the tax office.
The guidance from the ATO as to what needs to be reported and what doesn’t has been confusing to say the least. For example, the ATO has said that domestic building projects will be exempt from the program, however if the domestic building projects involve the use of subcontractors then they will need to be reported. Given that nearly every building project (of any size) involves the collaboration between various contractors (plumbers, electricians, painters, tilers, etc) it would seem that this “exclusion” actually might still capture the vast majority of projects.
This change comes into operation on July 1, 2012, so we would highly recommend that everyone in the building industry (builders as well as subcontractors) speak to their accountant about how this is going to affect them. If you’re accountant is not experienced in these matters then it is important that you post a job request for an accountant and get some quality advice for your business.
Resources:
Carbon Tax
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1350.0Feature+Article1Oct+2010
http://hia.com.au/media/Industry-policy/~/media/Files/documents/Carbon%20Tax%20documents/carbon_tax_price_adjustment.ashx
http://www.allenconsult.com.au/resources/acgcarbonprice2011.pdf
Subcontracting
http://www.smartcompany.com.au/construction-and-engineering/048605-the-building-industry-gets-ready-for-changes-to-tax-reporting.html
According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.
Story source: http://www.servicecentral.com.au