“Can you do it cheaper for cash?”
“Can you do it cheaper for cash?” – How often have you heard this question? The cheeky ‘cashie’ job. From a client, a tenant of your rental property or a pair of jousting sticks in the trading post. How much are they worth anyway? Tell him he’s dreaming.
The humble ‘cash job’ is about as Australian as a well-worn pair of R.M Williams.
But what is it, how does it work, and should you take up those offers?
When we talk about ‘cash jobs’ we are referring to someone receiving cash for work (wages or business) which is assumed to be un-traceable and consequently, not included in your tax return as income.
This is better known as tax evasion. And the prize for tax evasion? Well there’s no passing ‘Go’ or collecting $200.
The reality is what was once a big challenge for the ATO, cracking down on the cash economy has now become one of their biggest money makers. Between paying back income tax and GST with interest and penalties the ATO has made an outrageous amount of money ($11.8 billion in 2018) chasing up people who ‘forgot’ to include that missing cash income. Shame you can’t buy shares in the ATO hey?
The ATO has developed a range of methods for determining who may not be declaring all their income. The two major ones are “Small Business Benchmarks” (aka SBE Benchmarks) and “Taxable Payments Annual Reports” (aka TPAR’s).
SBE Benchmarks are used to determine if your expenses are in line with industry averages. If your expenses are significantly higher than the average, it suggests you are paying for all your business expenses but not declaring all your income.
The other is TPAR’s. Much like a PAYG Summary (your Group Certificates) for employees, businesses must also declare how much they paid contractors. So even if you received cash for a job, your employer will still have to declare how much they paid you. And when it comes time to do your tax return, if what you declare as income doesn’t match what the ATO knows about you, you’ll be getting a friendly call from an auditor.
Here’s the problem, cash isn’t all that useful. You can’t do much with it. Investments or property, cars, boats or jet skis and holidays are all registers and tracked by ASIC / Vic roads and other government entities. The ATO have the ability to align your lifestyle with your income – and all of these government entities are even known to review your social media! Big brother would definitely be proud.
So, if the ATO know everything about you, what can you do with all this cash?
Firstly, because it keeps you on the right side of the law and you’ll be able to sleep at night. But also because there are several significant benefits.
Here are just three;
Borrowing capacity: Particularly in the world post banking royal commission, its easier to find true love on Married At First Sight than getting a loan. From a mortgage to a car loan, the more income you show in your tax return, the more serviceability you have and the more likely you are to be successful getting that loan.
Using it to invest: if you’re required to declare it anyway, might as well put it towards setting yourself up for the future. Balanced portfolios, rental properties, or paying down debt – I suggest you speak to Highview’s financial adviser, Bruce Chisholm, on the best way to tackle this one.
Business value: your business is likely one of the most valuable things you own. So you want to get highest price for your business when it comes time to sell up right? Well declaring all the income will not only reflect the true performance of your business, but potential buyers prefer to purchase a business that show strong profits. Declaring all your income definitely helps with that.
In summary, when it comes to cash I often think about the master piece of Australian cinema, Chopper. The tax payer is Nevil Bartos, “Cash? Here there’s no cash alright?”
Unfortunately, much like Chopper Read, the ATO are pretty good at sniffing it out. So instead of being “wizz’d off to hospital at a hundred miles an hour”, you’re better off declaring it.
Article written by James Wrigley, Partner, Highview Accounting & Financial – Mornington.