Black economy measures

By admin - June 13, 2018

With the dust now settling on the 2018-19 Federal Budget, the key areas of funding allocation and likely impacts are becoming clearer. Pitcher Partners Tax Consulting Client Director Michael Charles examines one key area of interest – the scale of integrity measures to be introduced to combat the so-called black economy.

In December 2016, the Federal Government established the Black Economy Taskforce to tackle what it described as “a significant, complex and growing economic problem”. The move followed an initial investigation by the Board of Taxation, which was taken aback at the size of the black economy – around $21 billion or 1.5 per cent of GDP in 2012, according to the Australian Bureau of Statistics – and stated a concerted effort was required to rein it in.

In fact, Board of Taxation Chairman Michael Andrew, who heads up the Taskforce, noted in the leadup to the 2017-18 Budget that Australians considered taking cash payments and not declaring it “almost a national sport”, and acknowledged it would take a lot of work to turn attitudes around and clamp down on the practice.

This year’s Budget has made it clear the Government is getting serious about doing just that.

The 2018-19 Budget proposes the introduction of a raft of measures to combat the black economy, along with a $318.5 million funding package over four years to implement the new strategies.

One of those measures will be the introduction of a $10,000 cap on cash payments to businesses for goods and services from 1 July 2019

This is a direct measure to put clamps on undocumented cash payments that can be used to avoid tax or to launder money from criminal activities.

According to the Government, 69 per cent of transactions made in Australian in 2007 were cash-based. Nine years later, that figure had almost halved – down to 37 per cent.

While that indicates a clear increase in the number of Australians making the change to online transactions, a sizeable part of the population continues to rely on cash, and potentially on the black economy.

The new cash payments cap is in step with other countries which already have these kinds of measures. France, Portugal, Italy and Belgium are among those that already have cash limits in place, ranging from $1,600 to $4,800.

With the cap in place, the Australian Taxation Office (ATO) will see a number of non-compliant taxpayers come into the system, and it will have a better idea of who’s got money and what they’re doing with it.

The budget also provides $19.3 million for the development of a detailed business case to improve the way the existing Australian Business Register, Companies Register and Business Names Register interact with one another.

While a single business register will help reduce the regulatory burden, and provide real-time identification and verification of businesses, there is concern that the transition to the new register could come with significant red tape and compliance costs attached for those in the middle market.

The $318.5 million package will also fund an enforcement strategy aimed at further strengthening the ATO’s activities and initiatives tackling the black economy.

This is a direct response to the Black Economy Taskforce’s findings that a lack of visibility and low-level enforcement activity made existing laws ineffective.

In other words, while we do have adequate tax laws in place, they’re not an effective deterrent unless the ATO is seen to be enforcing them.

The boosted enforcement strategy includes new mobile strike teams and a larger audit presence, a black economy hotline to allow whistleblowers to anonymously report black economy activities, and improved government data analytics and educational activities.

According to the Government, the measures are estimated to generate an additional $3 billion over the forward estimates period.

It may be our national sport, but the umpires are set to play a much more active role. For a number of Australian businesses and individuals, it might mean reconsidering the way they play the game.

Note: On Friday 25 May 2018, the Government released a consultation paper asking for comments on the cash payment limit of $10,000 to help tackle the black economy.  The closing date for submissions is 24 June 2018.

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