The building and construction industry is one of many industries that requires careful management to ensure regulatory compliance.
At a glance
- Accurately identifying and managing mixed expenses is a challenge across construction, retail and hospitality, but maintaining separate accounts can help.
- Fluctuating income or partial payments in industries such as construction make it challenging to calculate and meet GST responsibilities, but a review of cyclical cash flow can help with planning.
- Complex staff arrangements in retail make accurate PAYG withholding calculations difficult but a software program that accounts for different rates and arrangements can ensure accurate reporting.
BAS challenges in the building and construction industry
The building and construction industry faces numerous obstacles, requiring careful management to ensure regulatory compliance. According to Daniel Hay, director of Power 2 Brisbane, which works closely with businesses in this sector, one of the major concerns is meeting the stringent requirements set by the Queensland Building and Construction Commission (QBCC).
“Businesses need to adhere to the QBCC’s net asset test each quarter, which can be a significant challenge,” says Hay. “Additionally, distinguishing between employees and independent contractors is complex. Each classification comes with its own set of obligations and tax considerations.”
If a worker is categorised as an employee, Pay As You Go (PAYG) withholding is required and must be reported on the statement by the BAS agent.
Builders also face difficulties in managing subcontractor transactions, as many subcontractors charge higher hourly rates. This can strain the budget when making quarterly BAS payments.
Discussing cash flow with clients and giving pre-warning of estimated BAS commitments may help builders better prepare to meet ATO obligations. BAS agents may also be able to advise builders about negotiating payment terms with clients and subcontractors that fit better with cash flow.
GST compliance adds another layer of complexity for contractors. Hay warns that the Australian Taxation Office (ATO) relies on data from the Taxable Payments Annual Report to monitor contractors. In some cases, contractors may receive default assessments based on this information. Checking that contractors are charging GST correctly can save financial headaches down the line.
Meticulous record-keeping is essential for compliance. “Accurately tracking of work-in-progress remains a critical yet challenging task for businesses in this sector,” Hay says.
“Distinguishing between employees and independent contractors is complex. Each classification comes with its own set of obligations and tax considerations.”
Daniel Hay, director, Power 2 Brisbane
BAS challenges in trade
Fluctuating income streams
Tradespeople, like many gig workers, often experience fluctuating income streams. This variability makes it difficult to estimate PAYG instalments and manage cash flow. Anticipating these often cyclical ebbs and flows by charting income over the previous year may help clients see how they can better plan for quarterly bills by putting money away during the times of healthy cash flow.
Mixed expenses
Misclassifying personal and business expenses is a common mistake and can lead to compliance issues. Most clients will benefit from maintaining separate accounts for business and personal spending.
Mixed invoices
For tradespeople who bill for both labour and materials, it is important to ensure GST is applied correctly to each aspect of invoices. Typically, GST should be applied to the labour cost while some materials supplied as part of the service may already include GST. BAS agents can advise clients to separately list labour and materials on their invoices and to keep proper records for all materials bought.
Progress payments
In larger jobs where progress or partial payments are made, BAS agents may also need to help clients understand that GST is payable at the time the payment is invoiced and received and can help with setting up clear invoicing procedures that align with progress payments.
BAS challenges in retail and hospitality
Complex staff arrangements
Retail businesses can have a large number of employees, making accurate PAYG withholding calculations essential, as well as part time and casual workers on different payment arrangements.
BAS agents can help them implement payroll software like Xero or MYOB that considers different pay rates, hours, and even allowances.
Mixed supplies
Claiming GST credits can be challenging, especially when dealing with mixed supplies. The hospitality sector encounters similar challenges, with varying tax treatments depending on the type of product. For example, most prepared meals and drinks are subject to GST, but certain takeaway foods may be GST-free. It is essential that the business’ point-of-sale (POS) system is applying the correct amount of GST to each item at checkout. A BAS agent can ensure all products in the POS system are correctly classified and make sure the business claims GST credits on the taxable portion of supplier invoices only.
Payroll
Payroll is another significant challenge in the hospitality sector, particularly for businesses such as retail shops that employ a lot of casual or part time staff. Frequent changes in shifts, overtime and varying pay rates increase the difficulty in accurately calculating PAYG withholding. BAS agents can encourage clients to implement payroll software that automates calculations. They can also review the payroll system to ensure it complies with award rates and ensure businesses meet their Single Touch Payroll requirements.
Alcohol and tobacco sales
For those businesses that sell alcohol and tobacco there are, of course, additional tax obligations. GST on alcohol sales needs to be tracked carefully and can become complicated when certain products are subject to excise taxes. BAS agents can help clients maintain accurate purchase records, sales data and excise tax statements to ensure compliance.
Profit sharing
The increasing popularity of apps like Uber Eats and Door Dash has added another layer of complexity for BAS agents. Managing GST on sales and input tax credits becomes challenging when a portion of the sales is taken as commission by the delivery platform. BAS agents can ensure clients report GST on the full sales amount, claim input tax credits for the GST included in the commission the delivery service retains and reconcile payments received from the delivery service with total sales figures.
More information on the IPA’s support for registered BAS agents is HERE.
