In this year’s budget, the government vowed to tackle the $50 million that goes untaxed in Australia each year — commonly known as the black economy. The initiative isn’t designed to penalise compliant small businesses, but new regulations mean there will be significant changes for all.
Incentives to encourage better accountability and reporting are also likely, meaning those quick to adapt could gain a competitive advantage.
New regulation is never fun, and preparations can often be pushed to the bottom of the pile. That said, planning now could avoid potential difficulties down the line.
Cash in on cashless
Businesses that make and receive most of their payments in cash will find things more challenging as the black economy crackdown takes hold. Business payments worth more than $10,000 will only be allowed via cheque or online transfer by 2019, and it’s likely that further regulations are on the horizon.
Most small businesses deal in smaller cash payments, but all compliant businesses would benefit from moving to cashless anyway. The black economy taskforce has recommended benefits for cashless companies, including tax instalment timing relief and immunity from late payment penalties to name a few.
Regardless of this regulatory enticement, customers are increasingly moving from cash on their own. ATO stats show that only one in five Australians prefer cash payments, and a planned government campaign will warn consumers about the lack of traceability that comes with this buying method. As the tide turns further, a digital payment offering will be essential.
Some small businesses are understandably reluctant to migrate from cash payments due to card transaction fees, but costs are reducing, and the ATO aims to pressurise payment companies into dropping them further. Processing of digital payments is often automated, meaning less time spent on admin too.
Digital payment devices can now be used through a smartphone, reducing the cost and mobility of digital payment technology considerably.
Formalising your workforce
The ATO is also clamping down on income tax. As of next year, businesses that pay their employees cash-in-hand, fail to withhold tax, or pay contractors without knowing their ABN, will no longer be able to deduct these payments in their activity statements.
This means a laissez fair approach to wages will no longer be sustainable.
Accounting solutions that can automatically calculate tax, work out salaries, and keep records of all the relevant information such as employee ABNs can avoid tricky situations. By using accounting applications, businesses will be able to keep better track of outgoings, while having the right reporting.
As part of this, it’s important to put in place formal checks to make sure all staff are still legally able to work. The black economy taskforce specifically points out problems with those working on tourist or student visas, so verbal assurance from employees on the right to work alone will not be enough.
Employees who are accustomed to receiving payments in cash may be disgruntled with these changes, particularly in industries where digitisation isn’t widespread. Uncomfortable conversations may be sparked, but this is less serious than questioning from the ATO.
Additional resources for the black economy taskforce mean more frequent audits. Tax office systems now use data analysis to spot anomalies and better predict which companies may have undeclared activities.
Even if a business considers itself as compliant, issues that were overlooked or unrecorded can quickly escalate if an explanation is questionable. For instance, a blurred separation of spending on personal and business factors could result in penalties.
To prepare for increased checks, it’s important to have all the company’s sales, payments and income recorded on an ongoing basis. This is extremely difficult if records are unorganised and consist of various paper-based receipts and invoices.
Those operating in high-risk areas as identified by the ATO including construction, couriers, cleaning, and IT contracting should be particularly vigilant, being the most likely to come under the cosh.
Better safe than sorry
The government’s black economy crackdown will be beneficial for small businesses overall, as compliance is tackled, and the business landscape becomes fairer. By adopting digital methods of cash management, businesses can set themselves up for success for years to come.