EFTPOS, payWave, Apple Pay, Android Pay, PayPal – electronic payment is increasingly the transactional method of choice. But cash still feels good in the hands, and is seen by many as the “real currency,” particularly in times of financial crisis.
So why is it no longer king? The ATO is cracking down on businesses and individuals who – whether deliberately or by accident – fail to declare their cash income or use cash to avoid paying employee benefits and the appropriate rates of tax.
Historically, many Australian businesses have favoured the cash model and, regrettably, also favoured non-disclosure of “cash-in-hand” earnings and outgoing payments. Cash is untraceable, an attribute that has seen it play the role of an accomplice in the “black economy” and allow the production of wealth and avoidance of tax and employment laws to be hidden. This costs the Australian economy an estimated $15 billion in lost taxes and welfare payments each year. Not everyone who uses cash does it to get around the rules, of course, but all cash-only businesses are now under greater government and ATO scrutiny.
We take a look at what this means for your business, including why you might need to transition to a non-cash model.
Who is the ATO targeting?
The ATO has been investigating many small service sector businesses that use a cash-in-hand model. In its sights are cafes and restaurants, carpentry and electrical services, hair, beauty and nail specialists, building tradespeople, road freight businesses, waste skip operators and house cleaners.
Typically there are three types of problem player in the cash economy:
- businesses and people who don’t understand the law;
- businesses and individuals who deliberately avoid their tax obligations; and
- people who use cash payments to hide income, to avoid losing Centrelink payments, or who are breaching visa restrictions.
Through its extensive data-matching programs, the ATO can now easily create a profile of a business in any geographic area and compare its income, profit margins and level of profitability with similar others. This means that if you’re not providing the whole story in your records and tax returns, the ATO will be able to pick up on the gaps and you may face penalties.
Benefits of a non-cash business model
There are many benefits of a non-cash model that can help your business to grow, such as:
- access to tax incentives that you might not have been aware were on offer if your cash activities mean you have been, even accidentally, not accurately declaring your full income;
- more and happier customers – many people expect to be able to pay, even for small items and services, with a card or smartphone;
- increased access to your market through the digital world – you could consider adding an online aspect to your business;
- the clear visibility of your business’s financial health that comes with electronic payment and recordkeeping facilities; and
- avoiding possible penalties for tax debts and allegations about improperly documented or underpaid employee entitlements.
Further incentives to move away from cash are on the horizon. As part of its terms of reference, the Federal Government’s Black Economy Taskforce will look into possible tax and other incentives for small businesses that adopt a non-cash business model.
How can you transform your business?
We understand that changing a business model requires planning and time to implement, but whatever your circumstances, we can help your business to transition to a non-cash model.
Where should you start? With your recordkeeping. This means accurately recording every sale and purchase in your accounting software, providing a receipt whenever you make a sale and collecting an accurate invoice whenever you make a purchase. This will give you a clear audit trail to prove that you are declaring all income. Talk to us about your particular activities and needs – we’re here to help you plan, and can provide advice on what you’ll need to do to ensure the best outcomes for your business.