Cash payments will always leave a trail, Inland Revenue says

Thursday, 21 December 2017

Inland Revenue investigators can access a lot of information about you.

Cash jobs always leave a trace, Inland Revenue says, even if you think you've covered your tracks.

The department is embarking on the next stage of its seven-year-old battle against 'cashies', with radio ads and billboards warning that it can uncover hidden payments.

If you don't have the official income to explain how you paid for things, Inland Revenue may have questions.

But how does it do that, and why are cash jobs such a concern in the first place?

What's a 'cash job'?

Cash jobs are becoming less common in New Zealand.

A cash job is any payment on which tax is not paid. That might be the $40 you leave out for your house cleaner, $50 for a babysitter or $1000 for a plumber fixing your shower.

Inland Revenue refers to these payments as the 'hidden economy'. It's a problem because people being paid this way do not pick up their share of the tax burden, which means those who do pay tax may have to pay more.

How big a deal is it?

Inland Revenue can't put a dollar figure on the value of cash jobs in New Zealand.

It estimates that a quarter of the New Zealand population took part in cash job activity in the 2016/2017 financial year. That's down from 35 per cent in 2012/2013. The drop makes sense given Inland Revenue's work to track cash payments, and our shift to digital payment methods.

Almost half the cash jobs in the most recent financial year were for $100 or less, Inland Revenue said, and about 20 per cent were paid by internet banking.

Home assistance services, such as gardeners and cleaners, and construction services, were the industries most likely to receive tax-avoiding cash payments.

About 20 per cent of the population said they were likely to ask for a cash price, even knowing that meant tax was less likely to be paid.

But if it's cash, how can Inland Revenue possibly track it?

Someone receiving cash payments might come to the department's attention in a few ways:

Someone might dob them in - there is a link on Inland Revenue's website to do this confidentially.
Someone they traded with my disclose the transaction in their own tax returns.
An audit of one person might indicate another business or contractor needed to be audited.
The Inland Revenue might decide to focus on participants in an 'at risk' industry, and perform random audits to check their compliance.

Inland Revenue investigations and advice manager Tony Morris said every cash job would leave a trail.

'With cash, you have to spend it some time. So whether it goes on travel, living expenses, a new skill saw, gambling, the mortgage or anything else, we can find it.'

People might put payments into a family member's account instead, so they did not have unexplained payments into the business account. But he said that would be traceable.

'Mortgage payments on a property and instalments on the work vehicle will still need to be made and that money needs to come from somewhere. Our investigators often find this is funded from an account other than the main business one. Suddenly a trail that leads to a cash job appears.'

He said investigators would become suspicious when they saw something such as new equipment, which had not been purchased through the business accounts.

'We put the onus on the business owner to explain how they funded the purchase,' Morris said. 'It's easy for us to see when the asset purchases don't align with their declared income.

'Often when we look at the accounts of a tradie we suspect has been doing undeclared cash jobs, we see plenty of evidence of supplies being bought, such as paint, carpet and timber but no evidence of any work being done. Unless they can show us their stockpile of supplies another undeclared cash job is usually uncovered.'

Even those who do not need to use the money for business purposes could be caught out. If you have an overseas holiday but do not have the income to explain how you paid for it, that might spark concern.

'Many people won't be aware but the Tax Administration Act gives us the power to access a wide variety of personal information,' Morris said.

'This includes but is not limited to: any information held about you by other Government departments such as Customs, Land Information New Zealand, and Land Transport New Zealand as well as records from national and international banks, spending with loyalty cards from retailers and with commercial organisations like Trade Me, electricity companies, and casino or gambling accounts.'

What's the risk?

If you're caught you may have to pay a penalty of up to 150 per cent of the tax owning. If you're a habitual offender you could be fined up to $5000 or five years in jail.

If you choose to come clean, your penalties can be reduced.

In its most recent annual report, Inland Revenue noted that it had found $159 million in 'tax position differences' in the 2017 year.

Meanwhile, credit reporting agency Dun & Bradstreet has reported that the number of business payments overdue has stabilised this year, after years of significant falls.

Since the third quarter of 2011, the average late payment time for an overdue invoice has fallen 61.8 per cent. But over the past 12 months, average payment times have increased 2.3 per cent.

Just over 80 per cent of businesses pay their invoices on time.