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Tax avoidance - cash payments



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TREASURER

.EMBARGO 9.30 p.m.

STATEMENT BY THE TREASURER, THE.HON. JOHN HOWARD M.P.

TAX AVOIDANCE - CASH PAYMENTS· · ' .

The Treasurer, the Honourable John Howard M.P.', tonight gave

details of measures foreshadowed in his Budget Speech to curb

avoidance of tax liabilities by persons who are paid"in cash, .

without deduction of tax instalments, for labour and services

they provide. . . ■ ■ - · . »

The lav/ obliges an employer to deduct P.A.Y.E. tax instalments

from amounts paid as salary or wages and remit the amounts

deducted to the Taxation Office. Payments made under a contract which is wholly or substantially for the labour of the payee

are generally treated as salary or wages from which P.A.Y.E.

deductions should be made. However, there is some question

v/hether tax instalments are required to be deducted from payments

made to a musician or entertainer, or payments for labour that

may be supplied by a person other than the payee.

The Treasurer said that the Government had decided to introduce

amending legislation to make it clear that payments made to

individuals who provide labour or services, including the

performance of a musical or theatrical act, would generally

be subject to P.A.Y.E. deductions. : . .

Mr. Howard said that the amendments had become necessary because

persons, who traditionally have stood in the relationship of

employer and employee are, to an increasing extent, entering into

arrangements under which former employees assume the role of

independent contractors, entitled to be paid in cash without

deduction of tax at the source. .

2 .

The Treasurer pointed out that substantial amounts of income . . .

received in cash are not included in the income tax returns of

recipients. Moreover, where the receipt of cash income has correctly

been declared in returns, the taxpayers concerned often face

difficulty in paying the full tax on assessment without any

offsetting credit for P.A.Y.E. deductions. . -

Mr. Howard said that the amendments, which are to be introduced .

shortly, would be designed to ensure that payments, to . .

individuals who provide labour and services would have P.A.Y.E.

instalments taken from them. He observed, however, that as the. .

amendments would not apply to payments made to a partnership,

trust or small company for services provided under contract, .

they still left considerable scope for cash income to be concealed from the taxation authorities. . ' * ·

The Asprey Taxation Review Committee had given consideration to ·

this problem. It favoured the introduction of a system similar

to those which have been in operation in the United Kingdom and in New Zealand for several years and recommended that P.A.Y.E.

deductions, at a flat rate, should be made from all payments

substantially for the labour of one person or a small group

of persons. .

Under the systems referred to by the Asprey Committee, any payment

made to a building and other contractor, whether an individual,

a partnership, trust or company, would be subject to P.A.Y.E.

deductions unless the contractor concerned had been given an

exemption from deduction by the taxation authorities. Such an

exemption would,, of course, be given only to a bona fide

business with a good tax paying record going back over a period

of some years. .

The Treasurer said that, in the light of the Taxation Review

Committee's recommendation, an investigation was now to be carried

out to enable consideration to be given to an extension of the existir

P.A.Y.E. system to all payments made to building and other contractors

The introduction of wider P.A.Y.E. arrangements would greatly

reduce existing opportunities for persons who conceal cash income

and thus avoid paying tax on it. . ·

3.

The investigation will be made by the Australian Taxation

Office and is expected to produce information from which a

wider P.A.Y.E. system appropriate to Australian conditions

can be designed and introduced.

15 August, 1978