So you've hired a tradie to do a job for you - big or small. And they offer you a discount if you pay cash and don't take a receipt. Or, you hire them but ask for a discount if you pay cash, and they agree as long as you don't need a receipt. What's actually happening here?
Trades businesses are like any normal business with an employee - they pay both income tax and pay GST to the ATO. Small businesses have various tax breaks that mean the business won't need to pay tax unless they turn over a certain amount of revenue or have a certain level of profit. GST (especially on materials) is paid when materials are purchased and then claimed back when the materials are used (ie someone buys them as part of a job).
The offer to give a discount for cash means one of two things - either that the business can offer you a discount because they're not going to declare the income and therefore are going to pay less tax, or that they want you to pay cash because it's easier. You'll know which kind of discount it is by their willingness to give you a receipt or not.
If a business gives you an incentive to pay cash but will still give you a receipt, this means they're still going to declare the income but they don't want the hassle of debt collection, cheques bouncing etc. Or maybe they're willing to get a little bit less because they need the money for materials or upcoming bills, and will pay less in interest or honour fees if they get the cash sooner. However, if a company wants to take cash from you and not have a record of that transaction in your possession, it means that the cash is going straight into their pocket with no record, no tax, and no accumulation to the thresholds of taxation.
So it's all about the receipt. In Italy, both businesses and customers can be fined if there is no receipt for a transaction. As a customer, you can be fined heavily if you leave a coffee shop without your receipt - however unintentional it may be. And in Australia, businesses can face severe penalties for not paying tax on all business related transactions. If currency changes hands, the tax office wants to know about it.
A receipt-less transaction will usually get the customer around a 10% discount. But when you look at the minimum savings that the business will make, it's usually far higher than this - imagine you could get 10% of your salary paid in cash or vouchers. This could put you in a different tax bracket, let alone saving you paying some tax on the actual amount. Plus, the business can also claim the GST on another job so can make further savings that way, and they also get the money sooner with no debt collection hassle. Some tradies are also affiliated to a franchise or group and pay a percentage of their 'sales' to their head office. You have no record of the transaction for future claims against workmanship, and so taking the company to consumer affairs can be tricky and this means the business can also pay less attention to the quality of the job if they wish.
We've had some great discussions with customers and businesses about this topic over the years, and here are some of the viewpoints that we hear.
The bottom line is that cash prices aren't illegal, but not declaring income or 'sales' is. But it's also a common practice - a 'second economy' or 'black market'.
Is to be sensible. Make sure that cash transactions are not receipt-less transactions before agreeing to them. None of the tradespeople that you'll find through Service Central will be unregistered, but if you're hiring from outside of our quality tradespeople, take care to confirm their ABN (check it online here) and check licences and insurance. Cash transactions without a receipt can often mean the business isn't registered with an ABN, and there is far less protection for you if you get into trouble with poor or dangerous workmanship, not to mention that the business will probably also not have the appropriate insurance.
We'd love to hear your stories. Comment below or post a job today to find quality businesses who are registered, insured and qualified.