‘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.
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.
Employers who mistakenly classify their employee as a contractor will not lose their deduction where their worker provides them with an ABN.
Employers that failed to withhold or report their PAYG obligations can come forward and voluntarily disclose this to the ATO before they take any compliance action. If they do, they will not lose their deduction and may be entitled to reduced penalties.
If a member of the community has any knowledge or concerns about an employer paying their workers cash in hand, they can report it to the ATO online at ato.gov.au/ReportAConcern or by phone on 1800 060 062. Reports can be made anonymously.