Crackdown on Australia’s black economy
The Government has taken on Australia’s ‘black economy’ by proposing four new measures in an effort to improve the integrity of the Australian tax system.
Expansion of the taxable payments reporting system
The Government’s taxable payments reporting system (TPRS) has been extended to the following industries:
- Security providers and investigation services
- Road freight transport
- Computer system design and related services.
The measures were previously applied to the building and construction, and cleaning and courier industries, where the Government identified these industries as being at a higher risk of not complying with their tax obligations.
Businesses in the identified industries will be required to report contractor payments to the ATO, bringing the reporting of such payments in line with wages.
These measures are proposed to apply from 1 July 2019, with the first annual report required to be lodged in August 2020. The Government has promised a new online form, with the aim of making the reporting process smoother.
Introduction of cash payment limit
Off the back of the findings from the Black Economy Taskforce, the Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services from 1 July 2019. Notably, the Government appears to have carved out transactions with:
- Financial institutions
- Consumer-to-consumer non-business transactions.
We expect the Government to consult further on the details of these measures. It is reported that large undocumented cash payments are currently being used to avoid tax and/or launder money from criminal activity. These measures will require transactions over the $10,000 threshold to be made through an electronic payment system or via cheque.
Tax deductibility of non-compliant payments
In an effort to create a further financial disincentive for businesses to engage in black economy behaviour, businesses will no longer be able to claim a deduction for payments made to their employees where they have not withheld the requisite PAYG under the proposed budget measures.
Further, the Government also proposes to remove deductions for payments made by businesses to contractors, where the contractor does not provide an Australian Business Number and the business does not withhold any amount of PAYG (as required).
The measures are proposed to apply from 1 July 2019.
Enhanced Government enforcement
To combat the measures outlined above, the Government will provide funding of $318.5 million to the ATO over four years. These funds will be used to:
- Implement new mobile strike teams
- Increase audit presence
- Introduce a Black Economy Hotline designed to allow the community to report black economy and illegal phoenix activities
- Improve Government data analytics
- Develop educational activities around the black economy.
This funding will replace the terminating program which ceases on 30 June 2018.
BDO acknowledges that the black economy imposes significant costs to Australia and, in particular, on honest businesses and individuals. However, we hope to see the Government’s implementation of its proposed measures to ensure that they do not impose significant new compliance burdens on honest businesses, in order to capture the cheats.
Businesses who are engaging in the black economy should be on edge, given the significant funding that has been allocated to combating such behaviour.