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‘Unfair’ tax deduction revoked by ATO

Color image of the prominent Edward Street in Brisbane. Image: Getty
The ATO is cracking down on cash-in-hand payments. Image: Getty

The Australian Taxation Office is warning employers that cash-in-hand payments will no longer be tax deductible as of 1 July 2019 as the taxman cracks down on undeclared earnings.

These payments, the ATO explained, are cash payments where the employer does not comply with their pay-as-you-go (PAYG) withholding requirements. Cash payments to contractors who do not supply an ABN will also no longer receive tax deductions.

Assistant Commission Peter Holt said the new requirements, revealed in the 2018-19 federal budget, will help tackle the black economy and remove the unfair advantage businesses doing the “wrong thing” previously enjoyed.

“It’s fairly straight-forward: do the right thing and you can claim a deduction. Deliberately do the wrong thing and you’ll miss out on a deduction and risk being penalised,” Holt said.

“The Black Economy Taskforce estimates that the black economy is costing the community as much as $50 billion, which is approximately three percent of Gross Domestic Product (GDP). This is money that the community is missing out on for vital public services like schools and roads.”

Continuing, Holt argued that businesses operating in the black economy are “undercutting competitors”.

And, he warned, employers failing to comply with their PAYG withholding obligations in general may also be penalised.

What if a business has made an honest mistake?

Employers that tell the ATO of their PAYG failures will not lose their tax deduction, and may also receive smaller penalties.

Additionally, employers who mistakenly considered their employee a contractor won’t lose their deduction where that worker has provided them with an ABN.

“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,” Holt said.

“Transacting in cash is a legitimate way of doing business, and we recognise that some industries do tend to take more cash than others.

“But 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.”

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