We expect that this year’s budget will act on the recommendations of the Black Economy Taskforce’s final report and introduce measures to tackle a cash and hidden economy that could be worth between $35-$50 billion. While it does generate some media, most people are unaware of the significant risks the black economy poses to our tax system, both in terms of lost tax revenue and broader impacts on the economy. As part of this year’s Federal Budget we expect that the Government will release the final report of the Black Economy Taskforce, which was delivered to Government back in October 2017. The Taskforce is expected to have made recommendations on many of the problems canvassed in the earlier interim report (issued in March 2017) and consultation paper (issued in August 2017). What is the black economy? The black economy typically refers to businesses and individuals who operate outside the tax and regulatory system. It includes activities such as the non-lodgment of tax returns, understatement of income, ABN and GST fraud, and phoenixing (where a business continues in a new entity after the old entity is deliberately liquidated to avoid paying its debts). It can result in underpayment in taxes such as income tax, PAYG, superannuation guarantee, GST, customs and excise and can enable welfare fraud and money laundering. The Australian Bureau of Statistics (ABS) estimated in 2012 that the black economy had grown to approximately $25 billion (in today’s dollars). The Chair of the Black Economy Taskforce has since commented that the size of the cash economy could be between $35 to $50 billion and the impact on tax and welfare collections could be as much as $15 billion. (By comparison, the ATO estimates the tax gap for large business and multinationals to be $2.5 billion in 2014-15). What’s been done previously to address it? Despite the delay in Government response to the final report, there have been a myriad of Government actions over the past year or so to tackle some of the more egregious practices; In the 2017-18 Budget, the Government announced a banning of sales suppression technology. At the same time, the Government announced an extension of the Taxable Reporting Payment System (TRPS) to contractor payments in the cleaning and courier industries. TRPS had previously been introduced into the building industry in 2012 with great success. The Government has announced and has been implementing a package of reforms to address illegal phoenixing activities including introduction of a Director Identification Number (DIN), reforms to prevent abuse of the Governments Fair Entitlements Guarantee.(FEG) scheme, and measures to prevent non-payment of GST on property transactions. The Government has made a number of announcements to tackle non-payment of superannuation guarantee (estimated to be $2.85 billion per annum in 2014-15), such as measures to exclude salary sacrifice contributions from employer superannuation guarantee obligations, reforms to give the ATO near real time visibility over SG compliance by employers, additional funding for a Superannuation Guarantee Taskforce alongside a strengthening of penalties. With industry sources indicating 1 in 7 cigarettes are illegally sourced, legislation has been introduced into Parliament to create a comprehensive set of offenses targeting the importation, possession, purchase, sale and production of illicit tobacco. The ATO also has released details of record tobacco raids in Queensland and Victoria this year. The ATO has undertaken a comprehensive integrity review of the ABN registry. In 2016-17 there were approximately 70,000 compliance cancellations due to issues around identity, continuance and entitlement. Under its Supporting Honest Businesses Program, the ATO continues to visit businesses in areas with a high proportion of cash-only takings, attending 2,600 businesses since June 2017. In 2018, Mandurah (WA), Bateman’s Bay, metropolitan Sydney and Chatswood (NSW), Toowoomba and Cairns (QLD), Western Adelaide (SA) and metropolitan Melbourne (VIC) will be visited under the program. What we’re expecting But the next lot of announcements could impact legitimate businesses by focussing on their interactions with the cash economy. The Taskforce has previously considered measures to: Deny deductions for cash wage payments particularly where no PAYG payments or superannuation contributions are made or where there is a failure to issue payment summaries. Alternatively, the Taskforce considered whether to require all wages to be paid electronically. Deny deductions for contractor payments where a valid ABN is not quoted and the payer has not withheld sufficient withholding. Limiting access to Australian Government procurement contracts to firms with a good tax record. This could potentially mean that firms with turnovers over $100 million must disclose tax information in accordance with the Voluntary Tax Transparency Code. Extend the TPRS more broadly to all contractor payments in the sharing economy, labour hire companies, owner-builders, and IT contractors. Improve supply chain management practices through a national framework which sets minimum standards for ethical sourcing and industry-developed certification schemes. Possible consumer-focussed sanctions, including the loss of consumer protections, warranties and legal rights for people who make cash payments without obtaining a valid receipt. Strengthening Know Your Client documentation and checks. Extensive ABN reforms including fit and proper person tests. Given the depth and breadth of the black economy, the measures needed to tackle it will also be far reaching. We expect that many businesses will be surprised by the increased controls, administration and regulation likely to be imposed to reign this issue in. The release of the Taskforce’s final report together with the Government’s response will be keenly watched this Budget cycle. Deloitte will be reporting live from Canberra on 8 May, sharing key takeaways and analysis as this year’s Budget announcement unfolds. Be the first to know by pre-registering. Thank you for submitting your details. We’ll be in touch with our Federal Budget coverage as it’s released.