‘Cash in hand’ payments to workers no longer tax deductible
The ATO has reminded employers that any ‘cash in hand’ payments made to workers from 1 July 2019 will not be tax-deductible.
‘Cash in hand’ refers to cash payments to employees that do not comply with pay as you go (‘PAYG’) withholding obligations.
Payments made to contractors where the contractor does not provide an ABN and the business does not withhold any tax will also not be tax-deductible from 1 July.
This new measure will take effect for payments made to workers from 1 July 2019 for income tax returns lodged for the 2020 income year onwards, and is part of the government’s response to recommendations from the Black Economy Taskforce.
In addition to the loss of a tax deduction, employers caught not complying with their PAYG withholding obligations may be penalised for failing to withhold and report amounts under the PAYG withholding system.
However, employers who mistakenly classify their employee as a contractor will not lose their deduction where their work provides them with an ABN.