On Wednesday (7 February 2018) the Minister for Revenue and Financial Services, Kelly O’Dwyer, introduced the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 (Cth) (the Bill) into the House of Representatives. The Bill focuses on combating two areas of "black economy" practices, being the use of technology to hide income, and the understating or non-reporting of income by contractors in certain industries. The Bill represents part of the Federal Governments response to the Report of the Black Economy Task Force established to:
The Black Economy Taskforce was chaired by Mr Michael Andrew AO, the former global head of KPMG and current Chair of the Board of Taxation. The Taskforce brought together senior leadership experience from public and private sectors. It provided an interim report to the government in late March 2017, with a final report delivered in October 2017. Over 130 consultations were held with representatives from business and industry, government sectors and the wider community.
According to the Treasury's website the black economy refers to ". . . people who operate entirely outside the tax and regulatory system or who are known to the authorities but do not correctly report their tax obligations".
The black economy in Australia is reported in a recent CPA article as being valued at A$25 billion in 2012, a figure the government's taskforce has indicated is likely to be greater these days because of the rise of "the sharing economy". The government's taskforce estimates black economy payments are likely to account for around 1.5 percent of gross domestic product. The reason for this is attributed to low wages growth and pressure on business margins motivating more and more people to evade the tax system.
In speaking on the Bill the Minister indicated that:
In Schedule 1 the Bill creates new offences banning the manufacture, distribution, possession, sale and use of electronic sales suppression tools.
The government justifies the ban stating that ". . . no legitimate reason exist for such tools" which remove transactions from electronic record keeping systems, falsify transactions to reduce the amount of each sale and modify GST taxable sales to GST non-taxable sales - leaving no audit trail.
The new offences proposed by the Bill are described as "strict liability offences" which target each stage of the supply chain, from manufacture and production, through to supply and use of electronic sales suppression tools. The Bill imposes heavy penalties which can be applied in order to deter the use of income/sales hiding technology across the whole supply chain.
In Schedule 2 the Bill introduces compulsory reporting to the ATO with respect to businesses operating in the courier and cleaning industries. This results from the Government's Black Economy Taskforce identifying that contractor payments in the courier and cleaning industries are areas of high risk for the non-reporting of income. The amendments in Schedule 2 extend the taxable payments reporting system to the courier and cleaning industries. Under that reporting system entities holding an Australian Business Number, that provide services to identified industries have to report annually to the Australian Tax Office (the ATO) about payments they have made to contractors for undertaking those services for them, for example, as a subcontractor. Reporting these payments, according to the government, will improve transparency and bring the payments more into line with the compliance obligations on employers who must report the wages they pay.
This measure is said to be similar to what has been implemented in the building and construction industry and has led to improvements in contractor compliance with GST and income disclosure.
Introducing the mandatory reporting of "business-to-business payments" for services within the courier and the cleaning industries is intended to encourage correct disclosure of income. This is because payments received by subcontractors will have been reported to the ATO by the businesses that acquired their services and additional reporting will allow the ATO to target compliance activity.
The Bill is currently at "second reading moved" stage in the House of Representatives. The amendments made by Schedule 1 (Prohibition on Income Hiding Technology) are to commence from the day after enacted Bill receives the Royal Assent. The amendments made by Schedule 2 (Compulsory Reporting Courier and Cleaning Industries) are intended to apply from 1 July 2018.
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Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 and supporting materials as available in the TimeBase LawOne Service
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