While cash payments are not illegal, Australia's Black Economy costs the community as much as $50 billion in funding to support, for example, your local schools and roads. To combat this, the 2018-19 federal budget introduced changes to whether you can claim a tax deduction for cash payments from 1 July 2019.
As a part of this change, you may not be entitled to a tax deduction for payments:
- To someone you consider is a contractor, but they should be an employee.
- To a contractor who does not quote a valid ABN.
- Where you fail to report PAYG Withholding to the ATO.
To ensure you can claim a tax deduction, you need to:
- Check that your contractor is not actually an employee.
- Before paying a genuine contractor, ensure you record a valid ABN.
- If you are paying wages, withhold the right amount of PAYG Withholding tax and report this to the ATO on time.
While the ATO have stated that employers will not be penalised for honest mistakes, this is an important requirement to consider if you run a small business. Some concessions will also apply to those that voluntarily disclose they have not complied with withholding requirements before the ATO takes any form of compliance action.
If you are concerned about your circumstances, we encourage you to contact our office at firstname.lastname@example.org or (02) 4990 3775 to discuss this with our friendly team.