28 June 2019

Taking action against the black economy

The Morrison Government is taking decisive action in the fight against the black economy with a number of new measures taking effect on 1 July 2019.

Minister for Housing and Assistant Treasurer, Michael Sukkar said the black economy undermines community trust in the tax system, gives some businesses an unfair competitive advantage, puts pressure on the margins of honest businesses and often includes the exploitation of vulnerable employees through the underpayment of wages and the loss of entitlements.

“We are expanding the taxable payment reporting system to include more high-risk industries, we are denying deductions for undeclared cash-in-hand wages, and we are strengthening Government procurement processes.” Mr Sukkar said.

Taken together, these measures are important steps in improving compliance with tax obligations and deterring businesses from engaging in the black economy.

Further expansion of taxable payments reporting

The Black Economy Taskforce identified some industries as being at higher risk of not declaring their income. In response, we are extending the taxable payment reporting system (TPRS) to include the road freight transport, security and information technology industries. From 1 July 2019, businesses in these industries will have to report payments they make to contractors to the Australian Taxation Office.

The TPRS first applied to the building and construction industry and, following announcement in the 2017-18 Budget, was extended to the courier and cleaning industries.

Denying deductions for non-compliant payments

Until now, some businesses have been able to claim deductions for expenses even where they have not complied with their withholding obligations, for example by paying undeclared cash-in-hand wages.

From 1 July 2019, businesses will no longer be able to claim deductions for certain payments – including payment of wages and payments to contractors – if the business fails to comply with its obligations to withhold and report information to the Commissioner of Taxation.

The disincentive created by denying the deduction will complement existing penalties for failure to withhold amounts under the PAYG system.

Denying deductions in these cases provides a strong financial disincentive to engage in this behaviour and will send a message that black economy behaviours are not legitimate activities.

Stronger Commonwealth procurement processes

The Government will lead by example in its procurement processes to reduce black economy activity in the supply chain.

In the past, suppliers may be outbid in procurement processes by those who have unfairly cut costs by not complying with their tax obligations.

From 1 July 2019, businesses seeking to tender for Australian Government procurement contracts over $4 million (including GST) will be required to provide a satisfactory statement of tax record (STR) from the Australian Taxation Office. The STR will indicate the business is generally compliant with their tax obligations.

Increasing the integrity of Commonwealth Government Procurement processes promotes good tax behaviour and creates an even playing field for businesses that comply with their tax obligations.

More information on the Government’s actions to address the black economy can be found on the Treasury website.

“I would like to recognise the significant contribution of the late Michael Andrew AO, the Chair of the Black Economy Taskforce, whose passion to tackle the black economy has resulted in these measures commencing on 1 July.” Mr Sukkar said.