Cash payments crackdown to close “loophole” allowing businesses to deduct “non-compliant” payments


A participant in the federal government’s Black Economy Taskforce has welcomed reforms that will prevent businesses from claiming deductions on cash payments to employees if they haven’t properly met their tax obligations.

The changes, set to be introduced to parliament later this week, will crack down on cash payments, The Australian reports.

If passed, the reforms will prevent businesses from claiming tax deductions on cash payments they’ve made to employees if they haven’t properly reported on or withheld tax from those payments correctly.

It comes in response to the recommendations set out by the Black Economy Taskforce’s final report, released in October last year.

Currently, businesses which pay employees cash-in-hand, or pay contractors without knowing their ABN, can still deduct those payments in their Business Activity Statements.

Tony Greco, general manager of technical policy and public affairs for the Institute of Public Accountants, welcomed the changes, saying they will make it harder for those doing the wrong thing to operate.

“What they’re trying to do is make it harder for those in the cash economy to operate,” he tells SmartCompany.

The taskforce has described the practice as a “loophole” which allows companies to deduct “non-compliant payments”.

Businesses will still be entitled to deductions for mistakenly withholding the wrong amount of tax or notifying the Australian Tax Office incorrectly by accident.

Greco says businesses which were already properly meeting their tax obligations have nothing to be concerned about, even if they do pay workers in cash.

“The companies that will complain are the ones that are effectively giving employees a free kick or are trying to subsidise their salaries,” he says.

The taskforce has argued the change will provide a financial disincentive to operating in the “black economy”.

“Disallowing deductions encourages proper reporting of wages and payments to contractors. It increases financial deterrents to operating in the black economy by removing an opportunity to reduce taxable income through deduction,” the taskforce said in its final report.

The changes represent a small portion of the 80 recommendations the Black Economy Taskforce made to the government.

Greco says there’s still a long way to go before the full breadth of the taskforce’s findings are brought to the floor of parliament.

“It’s early days … the bigger job is ahead, no one measure is going to fix the problem,” he says.

“So far it’s just the low hanging fruit that has been addressed.”

Greco cited other high priority recommendations, such as measures to strengthen the ABN system, including requiring periodic renewal of ABNs, as of crucial importance.

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