Earlier this week, the ATO announced that any unreported ‘cash in hand’ payments made to workers from 1 July 2019 will not be tax deductible.
Payments made to contractors where the contractor does not provide an ABN and the business does not withhold any tax will also not be tax deductible from 1 July.
Institute of Certified Bookkeepers executive chair Matthew Addison said the ATO’s focus does not mean cash payments are no longer allowed but is rather about unreported payments.
“If it is for wages then PAYGW must be considered and super must be considered but you are allowed to pay in cash, as long as it is reported according to the law,” said Mr Addison.
“The issue is about unreported cash payments. If you don’t withhold when you should, and if you don’t report when you should then no deduction.”
The government’s move to target tax deductions may have a silver lining for advisers by uncovering underlying issues sooner, one tax expert recently pointed out.
“The textbook early indicator that a business is experiencing cash flow problems is failing to pay to the ATO their employee taxes withheld – it’s the easiest liability to not pay. That’s often preceded by not reporting the withholding in the first place,” said Nexia national tax director David Montani.
“This could actually raise the issue of them experiencing cash flow problems sooner rather than later because in doing the business tax returns, this is going to be a question that has to be asked, and that could be a good thing because it gives you an opportunity to help.”