ATO Contractor Income Checks What Every Tradie Must Know

The ATO Already Knows What You Earned

If you work as a contractor in Australia and you have been less than thorough about declaring all your income, there is an important reality to understand: the ATO very likely already has a record of what you were paid.

Through the Taxable Payments Reporting System (TPRS), businesses that engage contractors in certain industries are legally required to report those contractor payments to the ATO each year. That means the ATO is cross-checking what you declare in your tax return against what your clients have already reported paying you. If the numbers do not match, you will hear about it.

The ATO has confirmed it is currently seeing contractors across multiple industries either incorrectly reporting or entirely omitting their contractor income through data matching. This blog explains how the system works, who it covers, what happens if you get it wrong, and what you need to do to stay compliant.

What Is the Taxable Payments Reporting System?

The Taxable Payments Reporting System (TPRS) is a framework that requires certain businesses to lodge a Taxable Payments Annual Report (TPAR) with the ATO each year. The TPAR details every contractor the business has paid during the financial year, including the contractor’s name, ABN, address, and the total gross amount paid (including GST).

According to the ATO’s Taxable Payments Annual Report page, contractors can include subcontractors, consultants, and independent contractors, and they can operate as sole traders (individuals), companies, partnerships, or trusts.

The TPRS was first introduced in 2012 for the building and construction industry, specifically to address widespread concerns about income under-reporting among contractors. It has since been extended to cover a broader range of industries.

Which Industries Must Lodge a TPAR?

Businesses operating in the following industries that make payments to contractors are required to lodge a TPAR:

Building and construction
Courier and delivery services
Cleaning services
Information technology (IT)
Road freight
Security, investigation, or surveillance

If your business provides any of these services and engages contractors to perform work on your behalf, you need to report those payments to the ATO via a TPAR. The ATO’s work out if you need to lodge a TPAR page provides a step-by-step guide to determine whether the obligation applies to you, including how to calculate the percentage of your income that comes from relevant services.

What If TPRS Services Are Only Part of What You Do?

If TPRS services are only part of the services your business provides, you need to work out what percentage of the payments you receive are for those services. As a general rule, if less than 10% of your business income comes from the relevant service, you do not need to lodge a TPAR. The building and construction industry is an exception, where the threshold is 50%.

What Contractors Must Report on Their Tax Return

If you work as a contractor in any of the above industries, the business you contract with is required to report the payments they make to you in their TPAR. That information flows directly to the ATO, which then uses it to cross-check the income you declare on your own tax return.

This means you must include all contractor payments you receive in your tax return, regardless of whether you received a formal payment summary, invoice record, or any other documentation. The income is taxable, and the ATO already has visibility over it.

This applies whether you operate as:

A sole trader
A company
A partnership
A trust

The structure of your business does not change the fundamental obligation to declare what you earn.

How the ATO Is Finding Non-Compliance

The ATO uses data matching to compare TPAR data lodged by businesses with the income figures declared by contractors in their individual or business tax returns. If a discrepancy is identified, the ATO takes a structured approach to resolving it:

Step 1: Initial contact. If the ATO suspects a contractor may have omitted TPRS income, it will contact them directly, typically by letter or phone, requesting they review and amend their tax return voluntarily.

Step 2: Review and audit. If the contractor does not take action in response to the initial contact, the ATO may escalate to a formal review or audit of their business.

Step 3: Penalties and interest. Where income has been omitted, and an audit confirms the discrepancy, penalties and interest charges will apply. The size of the penalty will depend on whether the omission is treated as a careless mistake or a deliberate act.

The ATO’s pre-filling of tax returns through myTax also incorporates TPAR data, meaning many contractors will see income pre-populated based on what their clients have reported. Failing to include this or deleting pre-filled amounts without a good reason is a significant red flag.

The Penalty for Not Lodging a TPAR (For Businesses)

The obligations under the TPRS sit with both the business paying the contractor and the contractor receiving the payment. For businesses that fail to lodge their TPAR on time, the consequences are real.

From 22 March 2025, the ATO will apply penalties to businesses that have not lodged their TPAR for 2024 or previous years and have been issued three reminder letters about their overdue TPAR.

A TPAR must be lodged by 28 August each year. For the 2025-26 financial year, the deadline for lodging the TPAR is 28 August 2026.

It is also worth noting that paper lodgments are no longer accepted after 28 August 2025. All TPAR lodgments must now be submitted electronically, either through the ATO’s Online Services for Business or through compatible accounting software.

What Information Is Included in a TPAR?

When a business lodges a TPAR, it is required to report the following details for each contractor:

Contractor’s name
Contractor’s ABN
Contractor’s address
Total gross amount paid (including GST)
Total GST included in those payments

This is a highly specific dataset. When the ATO cross-matches this against your tax return, it is not comparing rough estimates. It is comparing precise figures that your client has already committed to in a formal lodgment.

What Payments Are NOT Reportable?

Not every payment made to a contractor needs to be included in a TPAR. Key exemptions include:

Payments for materials only, where no labour component is involved
Employee wages (these are covered under PAYG withholding, not the TPAR)
Incidental labour, such as the delivery of materials with no additional service element

However, if a contractor charges for both materials and labour together on the same invoice, the full amount is generally reportable. Businesses should not attempt to exclude the labour component if it cannot be clearly separated.

Common Mistakes Contractors Make

Based on ATO data matching activity, the most common errors seen among contractors in TPRS industries are:

Simply not declaring the income. Whether due to oversight or deliberate omission, failing to include contractor income in a tax return is the primary issue the ATO is currently pursuing.
Declaring income in the wrong year. Contractor income is assessable in the year it is received (for cash basis taxpayers) or earned (for accruals basis). Mismatches in timing can create apparent discrepancies with TPAR data.
Assuming cash payments are untraceable. Businesses that pay contractors in cash are still required to report those payments in their TPAR. The TPAR obligation sits with the payer, regardless of how the payment was made.
Not reconciling pre-filled data in myTax. The ATO pre-fills tax returns with TPAR data. Contractors who do not review this carefully, or who delete pre-filled amounts without properly accounting for them elsewhere, risk triggering an ATO review.

What to Do If You Have Missed Reporting Contractor Income

If you have previously omitted contractor income from your tax return, the best course of action is to address it proactively before the ATO contacts you. Voluntary disclosure before an audit is initiated generally results in reduced penalties compared to an ATO-initiated correction.

You can amend a lodged tax return through myTax or by contacting your registered tax agent. The ATO’s amend a tax return page provides guidance on how this process works.

For Businesses: Are Your TPAR Lodgments Up to Date?

If your business operates in a TPRS industry and engages contractors, you should confirm:

Whether you are required to lodge a TPAR based on the percentage of income test
That your contractor records (ABN, name, address, amounts paid) are accurate and complete
That your TPAR has been lodged by 28 August for the previous financial year
That you are using electronic lodgment, as paper is no longer accepted

If you have outstanding TPARs from previous years and have already received ATO reminder letters, you should act immediately to avoid financial penalties.

How JMB Consultants Can Help

Whether you are a contractor wanting to make sure your income is correctly reported or a business that needs to confirm its TPAR obligations and lodgment status, JMB Consultants can help you navigate the TPRS requirements with confidence.

We can assist with:

Reviewing your tax return to ensure all contractor income is correctly declared
Preparing and lodging your TPAR on time
Amending prior year returns where income has been omitted
Advising on your obligations if you operate across multiple TPRS industries

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

LOCATION

QUICK LINK

OUR SERVICES