Companies to lose tax deduction rights in cash economy crackdown
AUSTRALIAN BUSINESS REVIEW September 18, 2018 Damon Kitney
Companies that fail to withhold tax from cash payments to employees, including wages, will no longer be allowed to claim deductions under reforms set to go before federal parliament this week.
The reforms are part of the government’s wide-ranging response to the final report of its Black Economy Taskforce, but the legislation to go before parliament will still allow businesses to claim cash payments as tax deductions where they inadvertently classify a worker as an independent contractor rather than an employee.
Also, businesses that mistakenly withhold an incorrect amount of tax or notify an incorrect amount to the Australian Taxation Office when making a cash payment will still be entitled to a deduction.
“These reforms provide a great opportunity to reduce red tape and make sure we assist those businesses doing the right thing,’’ said Black Economy Taskforce head Michael Andrew, who now heads a permanent advisory board to the federal government working with Treasury to delve deeper into the black economy.
The board held its first meeting last week.
“We will have safe harbours for people trying to do the right thing,” Mr Andrew said.
“The message at the meeting was 95 per cent of businesses are really happy with these reforms.”
But Mr Andrew said the reforms would hit cash-only businesses, especially those in the restaurant and horticulture industries, that used cash payments to avoid their tax obligations.
“This is one of the most significant weapons to combat the cash economy,’’ he said.
“This shines a light on those people that are cheating. So the restaurant owner who pays his chef cash, he now won’t get a tax deduction for the salary or the wages that he pays.”
Last week’s first Black Economy advisory board meeting was briefed by the tax office on the work of the ATO’s own black economy taskforce, after the federal budget granted it an extra $318.5 million for “mobile strike teams” and an “increased audit presence” across the cash economy. The meeting was also briefed by Australian Border Force officials after they recently established an Illicit Tobacco Taskforce.
Just last week the ABF seized more than 1.3 million allegedly illegally imported cigarettes concealed inside boxes marked “outdoor furniture” in Adelaide.
The meeting also discussed a federal government plan to impose a $10,000 limit on cash payments made by businesses for goods and services and plans to reform the 20-year-old Australian Business Numbers system.
If the former plan is approved, payments by businesses worth more than $10,000 will only be allowed to be made by electronic transfer (for example direct debit, BPAY, PayPal) or by cheque. The restriction will not apply to transactions involving financial institutions such as banks or those made from individual to individual.
But the reforms have been opposed by the Australian Chamber of Commerce and Industry, which claims there is no “hard evidence” of a widespread problem and said the change could undermine the integrity of the financial system.
The Housing Industry of Australia has also claimed the change could have little effect on tax leakage and criminal activities associated with large cash payments.
Instead, the HIA said, the proposal could adversely affect legitimate and compliant cash transactions.
“Furthermore, imposing such a limit on the residential building industry is considered unnecessary in light of other current regulatory arrangements that address business payments and tax reporting,’’ the HIA said in its submission to a Treasury consultation paper on the reform.
The changes are part of a package of reforms announced by the federal government to curb the black economy, which is estimated to have doubled in size since 2012 to $50 billion, or 3 per cent of GDP.
Last week the parliament approved a law extending the taxable payment reporting system (TPRS) from the building and construction industries to the courier and cleaning sectors from the 2018-19 financial year.
“So far we have had good bipartisan support to all initiatives,” Mr Andrew said.
In July, Treasury released draft legislation expanding the TPRS to road freight, information technology and security industries from 2019-20. “The road freight industry has actually embraced the changes because it will weed out unscrupulous operators and actually enhance safety across the sector,” Mr Andrew said.