TPAR for the course: Avoid these common mistakes in contractor reporting

With the taxable payments annual report (TPAR) lodgement deadline approaching, now is the perfect time for businesses in the real estate and construction sectors to review whether their contractor payments have been captured correctly.

While preparing a TPAR may seem simple, many common errors arise from simple mistakes or record-keeping issues. These can include misidentifying who to report, reporting only labour on mixed invoices, poor payment tracking, outdated contractor details, or lodging late or not at all.

With the ATO continuing to increase its focus on compliance in this reporting area, it is critical for business owners to get this right.

Key TPAR information:

• Businesses that may need to lodge include builders, developers, trade contractors, cleaning, security, IT and courier service businesses.
• Payments to contractors must still be reported even where the contractor subcontracts the work.
• TPARs are due by 28 August each year.
• If you no longer engage subcontractors, submit a non-lodgement advice instead.

Common TPAR mistakes that can put construction and property businesses at risk

1. Misclassification errors

One of the most common TPAR mistakes is misclassifying who and what should be reported. The rules can be broad, and businesses may overlook payments simply because the contractor is an individual, company, trust or partnership, or because the invoice includes both labour and materials.

Your TPAR must include:

• all contractors and subcontractors providing services on your behalf
• individuals, companies, trusts and partnerships
• payment tied to labour or combined labour and materials.

If invoices paid include both a labour and materials component, you must report the total amount paid, not just labour.

Exclusions do apply to TPAR reportable payments, and these can be as follows:

• Payments made to employees (PAYG Withholding will apply here)
• Payments for the supply of materials only
• Invoices that remain unpaid on 30 June
• Payments between entities within a consolidated group
• Payments that are considered private in nature.

2. Contractor misinformation

Another common mistake is relying on contractor details that have not been checked or updated.

If you pay a contractor and their ABN is either not quoted or is no longer active, the issue doesn’t trigger a fixed penalty in the same way as TPAR reporting errors – instead it creates a PAYG withholding obligation. The ATO then considers the payments made to the contractor under PAYGW rules and the risk comes from a failure to withhold when required.

Under the PAYG withholding rules, if a contractor does not quote a valid ABN you are required to withhold tax at the top marginal rate from the gross payment (47% including the Medicare levy).

If you pay a contractor without a valid or active ABN and fail to withhold, the ATO can impose a Failure to Withhold Penalty which may require you to pay the amount that should have been withheld. This effectively means that you could be out of pocket, even though you already paid the contractor the full amount.

The ATO can also impose further penalties, such as the General Interest Charge on the unpaid amount from the date it should have been remitted, and administrative penalties based on behaviour (lack of reasonable care vs recklessness). 

The ATO will factor in whether reasonable steps were taken to verify the ABN and whether the ABN was active at the time of payment, so it is important to maintain good records to reduce risk to yourself and your business. This can include:

• verifying ABNs before payment
• keeping evidence of the check with other contractor documentation
• re-checking where there may be long gaps between payments
• confirming that the ABN and the entity name match on records.

Penalties for late or incorrect TPAR lodgement

In recent years, the ATO has increased penalty enforcement for late or non-lodgement, particularly for repeat non-compliance. From 22 March 2024, administrative penalties are being actively applied where prior-year TPARs remain outstanding and the ATO has issued three non-lodgement notices. These penalties are based on penalty units and increase with the length of the lodgement delay. The base penalty is one penalty unit for every 28 days the TPAR is overdue, capped at five penalty units. With the penalty unit value at $330 from November 2024, the maximum late-lodgement penalty is $1,650 for small businesses. These penalties scale up based on entity size: two times for medium entities, five times for large entities, and 500 times for significant global entities.

Penalties also apply if your lodged TPAR contains false or misleading information. A TPAR becomes false or misleading where the report does not accurately reflect who you paid, how much you paid, or whether those payments should have been reported at all. This information can include understating or overstating contractor payments, reporting only labour on a mixed invoice, incorrect contractor details, or omission of contractor groups entirely. This false or misleading TPAR reporting can be costly, with penalties applied based on behaviour:

• Intentional disregard carries up to 60 penalty units
• Recklessness carries 40 penalty units
• Failure to take reasonable care carries 20 penalty units

These penalties are applied per error, meaning it can cost businesses up to $19,800 each time the ATO identifies this information.

What to do if you make a mistake with your TPAR

The most important thing to do if you realise a mistake has been made is to lodge a corrected TPAR as soon as you become aware of the error. Amendments may take up to 28 days to process, so acting quickly can help reduce exposure to penalties and follow-up compliance activity.

Review your information now

TPAR obligations and reporting can seem administrative, but the risk for businesses is real, and mistakes are typically avoidable.

For businesses in contractor-heavy sectors such as construction and property services, a practical pre-lodgement review can help ensure the report is accurate before the ATO’s data-matching process identifies an issue.

Need support with your TPAR lodgement? If you are unsure whether your contractor payments have been captured correctly, contact your local RSM adviser. We can help you review your records, identify common reporting errors and lodge with greater confidence before the deadline.