“Cash in Hand” Payments to Workers
Yesterday, 18 June 2019, the Australian Taxation Office (ATO) shared a press release around “cash in hand” payments to workers and their impact on deductibility of the expenses.
The ATO have stated that from 1 July 2019, employers that pay “cash in hand” to their workers (be they employees or contractors) will not be tax deductible.
“Cash in hand” refers to cash payments to employees that do not comply with the pay as you go (PAYG) withholding obligations; and payments made to contractors where a legitimate ABN is not provided and the business does not withhold any tax. A legitimate and valid ABN needs to be their own ABN and not registered to another entity such as Bunnings (this is very common).
This comes from the recommendations of the Black Economy Taskforce that the ATO have put together. It’s common for restaurants, cafes, trades, and others to operate on a cash basis where the business doesn’t report the cash income but try to report the cash expense and avoid paying superannuation for those employees paid in cash.
The onus now, is being put back on the decision makers of the business (usually owners), and the people making payments to the workers. Legitimate and valid invoices need to be provided by contractors for their services and their ABN needs to be confirmed to be from the entity listed on the invoice and the correct GST applied (per abr.business.gov.au research). If none of the information matches, then payment should not be made until a correct invoice is presented. If payment does however get made, then an amount equivalent of 47% needs to be withheld and submitted to the ATO with the monthly or quarterly business activity statement and a payment summary being issued end of financial year to the contractor business for them to claim it back from the ATO. More information about withholding from contractors is available on the ATO site.
So what do business owners need to do to ensure that they are keeping on top of their obligations?
- Review invoices provided by contractors to ensure ABN is registered, the ABN details are correct to the business providing the service and and the correct GST amounts are being claimed
- If no ABN provided or are incorrect, request a corrected invoice from the contractor and review the information
- If still not correct after reasonable requests for accurate information, if payment is still going to be made then withhold 47% of the total amount
- Remit the 47% to the ATO in the next Business Activity Statement or Instalment Activity Statement in the PAYG withholding section
- At the end of the financial year, submit a Payment Summary to the contractor and ATO. Payment Summary for ABN withholding can be found here
- Employees that are paid in cash still need to be on the payroll system and PAYG Withholding and superannuation must be calculated on the gross earnings
- Employees must also be paid in line with the relevant award for their role. Modern Awards can be found at FairWork
- The gross earnings and PAYG Withholding must be reported on the Instalment Activity Statement and Business Activity Statement for the relevant period
- With the introduction of Single Touch Payroll (STP) to be enforced from 1 July 2019, pay runs must be reported to the ATO through certified software (gross wages, PAYG Withholding, superannuation)
- At end of financial year, STP finalisation will need to take place to confirm all values paid relating to wages throughout the year (replaces Payment Summaries)
We are happy to work with business owners to keep them on top of their obligations and tick all the boxes that the government wants to see. We want to help you save time, save money and give you the comfort of knowing that your affairs are looked after by professionals so you can focus on the things you love to do.
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