The Australian Federal Government is forecast to announce before year-end further measures to curb the multi-billion-dollar black economy.
May’s Federal Budget adopted several recommendations from the Black Economy Taskforce, whose chairman Michael Andrew expects more measures in the government’s Mid-Year Economic and Fiscal Outlook (MYEFO) to be released in December.
Andrew, a former global head of KPMG and current chairman of the Board of Taxation, told CPA Australia that he wants to hear from CPA members because they can identify issues and suggest practical solutions to prevent people from operating outside the tax system.
“That type of information is like gold,” he says.
The taskforce’s interim report was released in May and a consultation paper expanding on its recommendations was issued on August 2. The final report will be delivered in October and Andrew will outline the Taskforce’s work at CPA Congress in Melbourne in October.
How big is the black economy?
Australia’s black economy was valued at A$25 billion in 2012 but the taskforce found the figure is likely to be greater now because of the rise of the sharing economy.
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The black economy taskforce
It estimates black economy payments account for around 1.5 per cent of gross domestic product and says low wages growth and pressure on business margins are motivating people to evade the tax system.
CPA Australia supports some of the taskforce’s proposals but says others will prove difficult to implement.
Near term proposals include:
1. Only firms with a good tax record should get the chance to win Australian government work, and these firms should be obligated to ensure their subcontractors meet the same standards.
CPA Australia head of policy Paul Drum FCPA says the principle is sound but questions how a firm can vouch for its subcontractors and, potentially, their contractors.
“A modified measure could be developed that could apply to both firms and individuals, such as barristers, who seek to take up service-type assignments with governments and government agencies,” Drum says.
2. Incentives for small businesses that adopt a non-cash business model. Cash is still legal tender, however, and CPA Australia says it is preferred by many older people and may be the only option in rural areas, where poor internet connectivity limits access to digital banking.
3. Expand the Taxable Payments Reporting System (TPRS) to labour hire companies, owner-builders, the home improvement sector and IT contractors.
The system requires businesses to report all contractor payments to the Australian Taxation Office (ATO) by August 28 each year. CPA Australia has raised concerns about excessive extension of TPRS stifling small business growth.
The ATO says 76 per cent of businesses that needed to report had done so in the system’s first year of operations in 2012-13, reporting A$163 billion of transactions.
It estimates the additional tax and GST liabilities reported at A$2.3 billion and this year started applying penalties to businesses that failed to report as required, despite being given the ATO’s support.
The taskforce says TPRS could also cover the sharing economy, with offshore operators having to report to the ATO as a condition of doing business in Australia.
Michael Andrew will speak about the black economy taskforce at CPA Congress 2017, the premier professional development event for the accounting and finance profession. Learn more.
4. Businesses should not be able to claim deductions on cash wage expenses where they did not make or report PAYG payments, issue payment summaries or statements of earnings, or make super contributions.
5. Businesses should not be able to claim deductions for payments to contractors where a valid Australian Business Number (ABN) is not quoted and the payer has not withheld part of the payment under the “no-ABN withholding” requirements. The payments should not be included in cost bases for capital gains tax or depreciation purposes where they were used to produce a capital asset.
Drum says it is hard to see where cash wages would be paid on a large scale, or regularly, and the issue needs closer examination.
6. Rationalise and modernise Australia’s 250-plus business registries so they provide real-time business identification and verification.
The taskforce says rationalising the registers could address misuse of ABNs. About 20 per cent of ABNs were cancelled in 2015-16 and Andrew says 180,000 people on tourist visas and 120,000 apprentices had ABNs despite not being entitled to them.
Policy options include:
7. Expand reporting requirements for high-value goods and impose a limit of, say A$10,000, on cash payments. Cash is often used to buy luxury goods.
8. Set a so-called “bright line test” for hobby-business income, with a threshold below which any income would be deemed hobby-related and not taxable.
9. Increase resources for data analytics. CPA Australia in its submission to the taskforce says the government has access to significant amounts of data and could build on the success of work such as the ATO’s data matching programs. The target should be to have as close to real time inter-agency sharing of data as possible.
10. Lower the A$75,000 GST threshold. CPA Australia does not support this measure, saying Australia’s threshold is comparatively low already.
Under investigation for the final report:
11. The rise of the sharing economy.
12. Amnesties for vulnerable employees who feel trapped in the black economy and for small cash-only businesses that adopt e-payment sales equipment.
13. Ways to improve supply chain management practices, such as making procurement officers “responsible officers” under the Corporations Act.
14. Focus on high-risk sectors such as building and construction, restaurants, cafes, offshore betting, and hair and beauty salons.
The taskforce’s inquiries have also highlighted problems in child care, disability services, aged care, labour hire, horticulture and abattoirs, so these can be expected to receive attention in its final report.
Accountants can face court action if clients break the law