This article was written by Karen McDonald, Jane Ma and James McGrath.
There has been a significant focus on compliance with the release of the Black Economy Package to combat tax evasion. The Government will implement the recommendations of its Black Economy Taskforce, targeting sectors where there is a higher risk of underreporting income. These measures include outlawing certain large cash payments greater than $10,000.
The measures are designed to disincentivise black economy behaviours and ensure greater compliance with tax obligations. These measures are expected to bring in $5.3 billion over the next four years.
Taxable Payments Reporting System (TPRS)
Under the TPRS, businesses are required to report payments to contractors to the ATO. The Government will further expand the TPRS to these industries:
- security providers and investigation services;
- road freight transport; and
- computer system design and related services.
The expansion is in response to the Black Economy Taskforce findings which identified a higher risk of non-compliance by contractors in these industries. Businesses will need to ensure they collect information from 1 July 2019, with the first annual report required in August 2020.
Economy Wide Cash Payments Limit
A $10,000 limit for cash payments made to businesses for goods and services will be introduced from 1 July 2019. Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. Transactions over the limit will have to be made through an electronic payment system or by cheque. However, transactions with financial institutions and consumer to consumer non-business transactions will not be affected.
Removing tax deductibility of non-compliant payments
From 1 July 2019, businesses will no longer be able to claim deductions for payments to:
- employees if the business has not withheld any amount of PAYG (where they were required to do so); and
- contractors if the contractor does not provide an ABN and the business has not withheld any amount of PAYG (where they were required to do so).
Strengthened ATO Powers
The Government will provide $318.5 million over four years to the ATO to implement new strategies to combat the black economy, including a Black Economy Hotline (to allow the community to report black economy and illegal phoenix activities), improved government data analytics and educational activities.
Other measures include:
- consulting on reforms to the Australian Business Number (ABN) system, such as the development of rigorous new identification systems for company directors; and
- providing additional funding to the Tax Practitioners Board to take action against tax agents that facilitate black economy activities.
For a full analysis of this year's Budget measures, please see Australian Federal Budget 2018-19.