Government hits Building Industry with three painful Tax changes
Business Coaching Quotes
from local business coaches
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 to the ATO
This is a time when the government has already withdrawn support from those in the building and construction industry through: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. The cost of steel has already increased significantly over recent years, with building products such as roofing, scaffolding, framing, nails, and steel reinforcement going through the roof. The last think that the building industry requires is even further increases to the costs of these steel building products.
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
-
Climate Collapse will hit us all very soon if we don't change our lifestyle. The building industry is a major contributor to global warming and must therefore alter its attitude.
over a year ago by I Love Carbon Tax
Bring on the carbon tax!!!! -
Your bias is showing. There is no carbon tax, there is a fixed price on pollution for a short period moving into an ETS. Business that has good practice set-up could even benefit financially out of it. Even the source material you quote doesn't call it a 'carbon tax'.
over a year ago by Charlie -
No one seems to notice that we had very similar angst about 'new 'tax' (es)when the GST became law, particularly after John Howard said "There's no way that GST will ever be part of our policy... NEVER EVER. It's dead." The world will not end with any of the taxes you are going on about, but it will certainly die if we take NO action about global warming at all. Stop carrying on with incorrect 'scare tactics. People should not be building huge houses anyway, so those that want them should be prepared to wear the consequences of their own decisions!
over a year ago by Pam
-
The general poulation will be paying for the carbon tax no matter what we do. Business have already stated in the past year or so when the government started talking about carbon teax that they would be passing on the costs. So good, bad or indifferent everybody will be paying on everything we buy or do. As far as I can see there is o insentive for the for any of the companies to do anything after all the comsumer is going to pay. After all they are going to look after their increasing pofits. If common sence was used part of the companies taxes could be returned with the guidelines for them to follow to cut down on the carbon polition The consumer wouldn't be paying. If requirements weren't reasch then the offending companies would have a smaller refund for the following year.
over a year ago by Colleen -
This article is biased and some scare tactics are being used. For a start, there is no such thing as a carbon tax. It's a price on carbon for heavy polluters. We need to reduce carbon emmisions or else disaster will be round the corner. People should build smaller homes and drive smaller cars.
over a year ago by Owen
I for one, applaud the carbon tax. I also will cancel my subscription to this newsletter who is very biased. -
over a year ago by Ben
Pam don't bring out the GST and the never never line. The carbon dioxide tax is totally different. Howard gave us the opportunity to vote on the issue and the majority of Australians voted for it. We didn't get the chance to vote on the carbon dioxide tax. The PM lied and is sticking it to us now. The carbon dioxide tax is going to do nothing to lower the worlds temperature. It will hurt small business and investment. The world temps have been dropping steadily over the past 7 years. 20% of the tax will be swallowed up by the government department running the program. You can’t lie to the Australian public and get away with it, look at what happen to Anna Bligh in Queensland
-
Er, the mining tax is on profits - that is, the amount of money left over when you've paid all your expenses.
over a year ago by mehitabel
So the 'cost' of a mining tax can not be recouped by raising your prices.
Say a mining company reacts to the tax by raising the price on iron ore. This means they make more money. Which means they make more profit. Which makes it more likely they pay a mining tax.
If an iron ore company wanted to pay less mining tax, they could only do this by making less profits, by reducing their prices.
So - in the absurd situation where a mining company decides it wants to evade paying the mining tax - they would achieve this by lowering their prices, not by raising them.
-
Why shouldnt buiders have to report subbies details
over a year ago by Aussie Jim
Im a contractor and i see no problem.
If we are all doing the right thing then it is a fair
Playing . The dodgy builders and dodgy subbies
should have pay tax and super just like everyone else -
Good point Jim. We at Service Central also don't think that proper subbies have anything to worry about. We are just questioning the timing of this. Why do they need to introduce 3 major changes simultaneously?
over a year ago by Danial @ Service Central -
What a lot of bullsh!t. Was this written by a Liberal MP? Stop misleading people with nonsense. The carbon tax is a great thing. The idea is - builders need to develop and use materials that are less carbon intensive- problem solved. As for the MRT - if you are short of cash, go ask Clive Palmer for a handout. He and Gina pay a few million each year to the Liberal party, maybe they should donate to struggling builders.
over a year ago by Marg -
Ben has stated things correctly, plus adopting a carbon Tax in Australia is not going to make any difference at all to the worlds pollution. But will certainly further increase our costs.
over a year ago by Leon -
I am sick of listening to the bull shit. Carbon tax and like road traffic cameras are
over a year ago by GREG
another way to raise revenue. I thought Carbon tax was there to have pollution controls not for us to once again put our hands in our pockets -
The carbon tax is a unnecessary idelogy based nonsence . Marg i think that alot of people liberal or labour are outraged by the introduction of a carbon dioxide tax . The only reason we are getting one is not because of so called poluting carbon dioxide but because without it the greens would not have backed gillard .She will do anything to be in power ,but not for long labour will be gone in 2013
over a year ago by Tez -
Trying to use common sense here... Are Australians the only polluters in the world? Why doesn't America or China fork out a cent? As far as I know, they're the biggest pollutors on earth.
over a year ago by MelbChick -
The comments on the mining tax ignore the fact that it is a tax on superprofits-the profits they are making because of the inflated export prices - blame China for the increases in inon ore costs and consequent increases in steel costs in Australia. The mining tax is simply trying to keep some of the mining profits in Australia.
over a year ago by Michael Macleod
The comments on subcontractors - those of us who pay taxes subsidize those who evade their responsibilities - they want the benefits that flow from the government but don't want to pay their fair share.This measure is purely a response to the fact that many subcontractors are evading tax
-
I'm a builder. Let's take a more serious look at the material cost increases listed ... the article lists 1% - 4% increases .... I tell you this is negligible .... for the last 3-4 years the concrete companies have been increasing prices every 4-6 months at a rate of 6% - 8% !!!!!
over a year ago by Steve
what concerns me is that just like we heard on news a week ago some airlines are raising airfares NOW .... at a rate more than "predicted" by these carbon tax "experts".
If all building materials start going up 10%-15% .... which is what I predict will happen because the big boys will simply use the tax as an excuse to raise their prices and there is no regulatory body that can keep them in check as to how much they raise their prices .... then you will start to see $500,000 going up in price by $50,000 - $75,000 .... this may hurt !!!!!
As for the lame argument that VIC govt is encouraging smaller houses to be built ... that's a good thing .... smaller windows is also a good thing (from a thermal insulation perspective).
And just as I teach my kids to think about their responsibilities every time they pipe up and tell me they have the right to do something .... the government should also think about the full extent of its responsbilities and power and not just its rights to increase revenue by increasing taxes .... how ?
Look at the americans and canadians ... their 'green' building sector of the industry is growing because the government provides rebates / subsidies to the builders / owners / subcontractors who build using green technology. Their banks lend them more money if they build a house that has lower utility costs. Their insurance companies lower their premiums if they build with ICF's (polystyrene filled with concrete) as opposed to 'matchstick construction' which gets severly damaged or blown away completely in a storm.
Building green is not a dirty word in australia any more ... it's catching on ... but the government is not helping ... their rhetoric about giving back portions of the earnings to those hardest hit will also change in time.
I believe we have all accepted that this will do nothing for the environment, however, if it were thought out a little better it might have helped the green building movement come a long way with the introduction of this new fundraising venture of theirs. At present, green building is about 15 years behind america and canada and only they can make that better.
Nothing wrong in my opinion with 6 star energy rated homes .... my clients love living in my 8 star homes. what I do know is that the brick industry and insulation batts lobbyists have a good grip on the government and will fight to the death before allowing their products to be finally seen as thermally useless.
Australia needs more double glazed windows, better insulated wall systems (ICF or SIPS), more passive ventilaiton not airconditioning, better orientation from architects not just a project home dumped on your land, more solar electricity and geothermal technology all of this has been used around the world for at least 30 years and is only now starting to grow in Australia .... why are we so far behind ? -
Just realised the 'Mining Tax' was mentioned. How does this effect anyone at all? Why even mention it? You do realise that minerals are sold onto the market at market value, they can't just up the price and expect people to buy them, they have to sell them at market value no matter if their super profits are a little lower or higher.
over a year ago by Charlie
The only difference it makes is a little less to the massive profit from our resources companys and a little more to the Australian population's pool.
And regarding the 'why don't China and the US pay up?'. China is bringing in a similar price on pollution, the US has had it in many of their states for years. So the question is why is it taking us so long? The longer we wait the further behind we'll be compared to other economies at our own detriment.
Business Coaching Quotes
from local business coaches
