Undeclared Cash Payments No Longer Eligible for Tax Deduction in New ‘Black Economy’ Crackdown

As an element of the recently-created ‘Black Economy’ task force, new laws now make it illegal for cash payments to be claimed as a deduction where they have not been declared as income.

Although much talk has been made of the tax impact of large multinational companies operating in Australia and their failure to pay reasonable amounts of tax, the Australian Government and the Australian Tax Office (ATO) are also targeting the ‘small end of town’ in new anti-avoidance regulations that came into force on 1 July 2019 (the beginning of the 2020 income year).

The ATO claims that many small businesses or independent contractors are unfairly flouting the law by using cash payments to avoid meeting their PAYG obligations.

Whilst cash payments are fairly common, especially in some industries, the ATO claims that a significant amount of revenue is lost to businesses claiming deductions on cash payments to contractors that are not declared and thus not subject to pay-as-you-go withholding and other reporting obligations.

The ATO also claims that some businesses may also deliberately choose to not declare cash payments made to employees or contractors in order to gain an unfair advantage over competitors.

The new measures may act to level the playing field amongst businesses and prevent illegal transactions.

The new laws also apply to payments that have been made to contractors where a valid Australian Business Number (ABN) has not been supplied, meaning that businesses will need to be extra vigilant.

These changes are an additional thing to keep in mind for small businesses that already face hefty tax reporting obligations.

Businesses who flout the new undeclared cash payments rules, either deliberately or accidentally, may find themselves with a heightened tax assessment or other penalties imposed by the ATO.

As always, it is especially important to be aware of your tax and tax reporting obligations, especially if your business frequently deals with cash payments – common with restaurants, pubs, hairdressers or salons, retail shops, and tradies.