Cash payment limit to bite residential building sector
The Commonwealth Government has introduced an economy-wide cash payment limit of $10,000 (the limit) as part of the 2018-19 Budget. From 1 July 2019, payments greater than $10,000 to Australian businesses for goods and services will not be able to be made using cash. This limit has been introduced in order to minimise the use of cash for tax avoidance or for laundering the proceeds of crime.
The limit will apply to transactions in excess of $10,000 made to businesses with an Australian Business Number (ABN) for goods and services. Such transactions will not be able to be made using cash. Instead, these transactions will need to be made via electronic payment system or by cheque. It will not be possible to avoid the limit by splitting the transaction into smaller cash amounts of less than $10,000 each.
Why is a limit necessary?
The Black Economy Taskforce's Final Report of 2017 (the Final Report) identified that large, undocumented cash payments pose a significant risk to legitimate commercial practices. In particular, many businesses insist on cash being used to pay for their goods and services in order to avoid paying tax.
The 2018-19 Budget has adopted the Final Report's recommendation to introduce a cash payment limit. Building renovations were singled out in the Final Report as a key area susceptible to large, undocumented cash payments. While the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML-CTF Act) requires reporting of cash transactions in certain sectors over the same limit, the building and construction industry, is not currently regulated by the AML-CTF Act.
What will be the implications for the residential building sector?
Both parties to a cash transaction above the limit will face penalties. The penalties will apply both to owners who seek that businesses accept cash in exchange for a discount and businesses which insist on being paid in cash to avoid paying tax. This is in contrast to the current position where the tax avoidance risk rests on the party who should be remitting.
In the lead up to the introduction of the limit, publishers of standard form contracts will need to consider the addition of consumer warnings. Parties who ignore the limit will need to consider the risk of detection should they fall into dispute and their commercial arrangements be exposed before a court or tribunal. If the penalty operates as a deterrent, then given that the practice of paying certain trades in cash is so widespread as to be baseline, the limit may put upward pressure on prices across the sector.
Considerations in establishing the cash payment limit
In deciding upon the limit of $10,000, the Treasury has observed that:
- the limit is high enough to reduce black economy behaviour, but not so high as to impinge upon businesses who undertake legitimate business transactions involving cash
- while there are transaction costs associated with using electronic payment systems, businesses are likely to benefit from a reduction in expenses associated with dealing with and holding cash, such as transportation costs and fraud controls.
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