New laws aimed at removing tax deductions for businesses that fail to comply with their withholding obligations are set to come into play as the government continues to tighten its grip around the cash economy.
Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018 was introduced in the Senate last week, and aims to deny income tax deduction for certain payments if the associated withholding obligations have not been complied with.
The proposed law, set to kick in on 1 July 2019, is intended to create a financial disincentive to businesses making payments to those operating in the black economy by disallowing deductions that would normally be available.
The deduction is only denied where no amount has been withheld at all or no notification is made to the commissioner.
Speaking to My Business’ sister publication Accountants Daily, Institute of Public Accountants general manager of technical policy Tony Greco said the new measures were part of the government’s push to capture the cash economy.
“The law as it currently stands enables you to claim a deduction without having to have done that step but now they are tightening up that process whereby you don’t get a deduction unless the employer has withheld tax according to the schedules,” said Mr Greco.
“If someone has been paid cash in hand then employers may lose a deduction if they don’t tighten up their processes to ensure that doesn’t happen going forward.
“This is a case of improving the integrity of the system by making it harder for employers to pay cash wages, so it is another step to get employers to think twice about paying in cash.”
Mr Greco cautioned that businesses “need to understand the denial of a deduction and what that means and what that translates to, how it may be a financial burden on the business if they can’t claim an outgoing for tax and what that means in dollars and cents.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.