If I had a dollar for every time I have heard this or "But everyone in the industry does it that way.", I would be a billionaire by now.
This is not an excuse and the time to move on is here. The rules about employees, contractors, "cashies", and nearly everything else have changed and you need to get up-to-date. Lets's look at a few examples:
A company hires a person to deliver leaflets in the local community.
1. The company pays them cash and claims the expenses as a deduction. Not acceptable. The company cannot claim the expense and cannot pay the person in cash without an invoice or tax invoice and a valid ABN.
2. The person gives the company an invoice but it does not have an ABN or has a TFN. Not acceptable. The company cannot claim the expenses and is required to withhold 49% of the total invoice as there is no ABN. The TFN is not acceptable at all.
3. The person is only working for one company on a casual basis and provides an invoice.Not acceptable. The company sets the hours, provides the tools and sets the rate of pay. This person needs to be set up as a casual employee and paid casual loading. The person does not need to provide an invoice and is not required to have an ABN. The person is entitled to superannuation if the income is over the threshold of $450 (in some case $350) in a month. The company will pay the person's tax. Alternately, the company can include the person in their worker's compensation figures and pay their super - this waw the person can trade under their own ABN and pay their own tax or have the company withhold their tax.
A company pays a referral fee to a person for referring a friend.
1. The company pays them cash and claims the expenses as a deduction. Not acceptable. The company cannot claim the expense and cannot pay the person in cash without an invoice or tax invoice and a valid ABN.
2. The company pays them from their bank and claims the expenses as a deduction. Not acceptable. The company cannot claim the expense and cannot pay the person in cash without an invoice or tax invoice and a valid ABN.
A company pays cash to a person to mow the lawns.
1. The company pays them cash and claims the expenses as a deduction. Not acceptable. The company cannot claim the expense and cannot pay the person in cash without an invoice or tax invoice and a valid ABN.
2. The company pays them from their bank and claims the expenses as a deduction. Not acceptable. The company cannot claim the expense and cannot pay the person in cash without an invoice or tax invoice and a valid ABN.
There are many more examples I could use to show you what was previously done and how it has changed.
The Black Economy
“When cash is used to deliberately hide income to avoid paying the correct amount of tax or superannuation it’s not only unfair, it’s illegal”
“Our objective is to support small business to help them get it right. But anyone caught deliberately doing the wrong thing will lose their deduction”.
The ATO is putting an end to "cashies" and the Black Economy. This means the contractor's data should be checked as it is received. The registered address completed or requests, the ABN checked to be sure it is valid. The GST registration checked to be sure the gst is claimed correctly and checking to see if it included the words Tax Invoice if they are GST registered. The ATO announced that the expense is no longer tax deductible if the ABN is invalid. So you don’t only lose out on the GST but you also lose out on the whole tax deduction for the expense.
Recently, clients have reported ATO agents doing "drop-in's" to investigate businesses known for cash trading. So what are they looking for?
- demanding or paying for work cash in hand to avoid obligations
- not reporting or under-reporting income
- underpayment of wages
- bypassing visa restrictions and visa fraud
- identity fraud
- ABN, goods and services tax (GST), and duty fraud
- illegal drugs and tobacco
- sham contracting – presenting an employment relationship as a contracting arrangement
- phoenixing – deliberately liquidating and re-forming a business to avoid obligations
- excise evasion
- money laundering
- unregulated gambling
- counterfeit goods.
So please don't put yourself and your business at risk. Ask for advice you pay a new supplier or contractors. Ask for advice before you hire a new staff member. Ask for advice before you pay anyone cash. Deposit and declare all of your cash.
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