The Australian Tax Office is cracking down on the black economy, also known as the cash-in-hand economy.
The introduction of the goods and services tax (GST) in 2000 aimed to support the beginning of the end for the cash economy in Australia. Yet, studies suggest that the GST merely slowed the growth at best, and at worst, encouraged more cash-in-hand tax evasion.
“How much for cash, mate?” A question often posed by customers across many industries, aiming to cut a 10% discount on cash jobs. Some businesses also pay their wages to some or all of their employees in cash “off the books” to avoid tax, superannuation contributions and even penalty rates.
Of course, cash is a perfectly legal way of paying for goods or services or to pay your employees’ wages, as long as tax and benefits are being paid.
The Hidden Costs
The Australian Bureau of Statistics estimates that the cash economy accounts for about 1.5% of GDP, approximately $21 billion – with 1.6 million businesses a part of this. The largest component of this economy is known as “underground production”. This is defined by the ABS as “activities which may be legal but are deliberately concealed from public authorities”, and the ABS says it is typically concentrated in industries such as “construction, accommodation, cafes and restaurants, personal and other services, and retail trade”.
As a result of this growing economy, the Australian Tax Office (ATO) has stepped up audits of small businesses in high-risk industries that are suspected of taking illegal cash-in-hand payments. The ATO estimates more than half of businesses in the hair and beauty industry and almost half in the restaurant, cafe, takeaway and catering industry are cash only.
Aside from cafes and restaurants and hair, beauty and nail salons, other industries that have been under the ATO’s watch include carpentry and electrical services, building trades, road freight, waste skip operators and cleaners.
In 2015-16 the ATO monitored 127,000 cash economy businesses, conducted 15,000 audits and enforcement activities and raised over $208 million in tax and penalties. Furthermore, more than 5500 workers dob in their bosses to the ATO every year for allegedly illegally paying them cash in hand.
What Are the Risks?
Failing to meet tax obligations is a criminal offence.
There are two charges that are used in cases of tax evasion:
- Obtaining a financial advantage by deception
This is a Commonwealth offence under Section 134.2(1) of the Criminal Code Act. To be found guilty of obtaining a financial advantage by deception, the prosecution needs to prove that you obtained a financial advantage for yourself or for another person, or that you induced a third party to obtain a financial advantage or to keep a financial advantage that you had. The deception has to be considered reckless or deliberate, a genuine mistake is not enough.
- Conspiracy to defraud
This offence under Section 135.4 of the Criminal Code Act is used when two or more people are charged with working together to defraud a Commonwealth organisation.
Both of these offences come with a maximum penalty of ten years’ imprisonment and there have been a number of cases in recent years that have resulted in prison sentences for those convicted.
As an employee, being paid wages in cash may be more convenient. However, you should ensure that you are not being paid less than the correct award wages relevant to your industry. Moreover, you should check that your super contributions are still being paid to your super fund.
Being “off-the-books” can significantly impact young people, especially those working in industries less likely to be unionised. Young people should confirm with their employer that they are receiving pay that reflects applicable penalty rates and superannuation, as well as annual leave and sick leave entitlements.
If you are receiving cash for your work or services, you have rights and responsibilities, as outlined on the ATO website.
If you receive cash for work you need to:
- be paid (at least) the correct award wages
- ensure you don’t end up with a large tax bill because your employer hasn’t taken tax out of your pay
- get the benefit of super contributions
- be covered by your employer’s workers compensation insurance in case of an accident.
If you’re paid in cash, you must keep a record of all payslips and wages that are paid to you and use them to fill out a tax return at the end of the financial year.
As an employer, paying employees with cash is acceptable and legal. However, if you are paying your employees’ wages in cash, you should:
- Check the relevant pay rates that set out when and how much employees should receive
- Provide regular pay slips showing all of the employee’s earnings
- Provide a payment summary at the end of the year which sets out the employee’s full earnings
The Fair Work Commission regularly checks if employers are paying their workers the correct wage, this includes minimum hourly rates, penalty rates, and overtime.
Paying your fair share of tax will bring benefits in terms of lower income tax rates, smaller budget deficits and hopefully better government services.
If you are being paid cash in hand or have been paying your employees cash in hand and don’t know your entitlements and responsibilities, an experienced employment lawyer can assist you.
At Le Brun & Associates, we are experts in employment and criminal law. If you would like to discuss your options, you can contact us to discuss your needs during a free 30-minute consultation. We have four offices throughout Melbourne that offer a wide range of legal services. Contact us here to find out more.