A recent news article appearing in the Sydney Morning Herald claimed that Bunnings Warehouse’s ABN (Australian Business Number) was been falsely quoted by a staggering 40% of all contractors in the Northern Territory. This means that potentially hundreds of millions of dollars of revenue is not being collected. Given this, we can expect a lot more audit activity from the ATO in these areas in the near future.
We have recently been involved with an ATO review for one of our clients. Our client uses many contractors in their business and was primarily focussed on the tax invoices issued by their contractors. This review found that more than half of the ABN’s supplied by the contractors to our client did not exist, did not belong to that contractor, or were not even registered for GST.
We were shocked by these findings, but what was even more shocking was the ATO’s response. They maintain that our client had illegally claimed GST on purchases and was therefore required to pay it back to the ATO. We believe this to be very unfair given that our client had paid these invoices in good faith. The tax invoices provided to our client had met all the criteria as stipulated by the ATO apart from the validity of the ABN. The ATO suggested that our client seek recovery of the illegally billed GST from the contractors involved. Although this is probably the correct course of action, given our client is in the building industry, the likelihood of recovery from the contractors is remote.
Given the difficult and time consuming task of recovering the GST from the contractors, we believe the ATO should focus on the contractors who provide these invoices.
How can you protect yourself from this?
If you use contractors in your business we recommend checking the ABN that they provide.
This can be quickly and easily done by going to the following website: https://abr.business.gov.au/. Simply enter the ABN provided and the website will tell you who the ABN belongs to and their GST status. Check that the ABN correlates to the contractor and that they are registered for GST. Under the rules, if an invalid ABN is provided you are required to withhold 45% of the payment and remit this to the ATO through your BAS lodgements. We recommend checking the ABN prior to engagement of services as withholding a payment may lead to some unpleasant exchanges with the contractors. Should you have any concerns with the above, we recommend you contact our office for assistance.
This article appeared in our September 2017 newsletter.