Pay Cash or Pay Invoice for capital works

Discussion in 'Accounting & Tax' started by kmrr, 14th Jan, 2021.

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Cash or Invoice

  1. Cash

    1 vote(s)
    14.3%
  2. Invoice

    6 vote(s)
    85.7%
  1. kmrr

    kmrr Well-Known Member

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    Hi All

    I had some skylights replaced in my CIP and the cost has come to $5500+GST or $4000 cash. The roofer is content to go either way.

    I am just wondering whether it is ever advantageous to pay cash and not be able to depreciate this capital expense and i presume also fully write off the expense against any rental income.

    I note that the properties are also held in a trust if that makes any difference? will my tax bracket be a consideration too?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The $4K is illegal and then non-deductible. Warranty issues ? (It could also be a repair rather than a capital exense subejct to capital allowances. The skylights are part of the roof, which is part of the building. There is no replacement of the building)

    Its also sign of a questionable dishonest tradesperson. Tax avoidance is theft / fraud. It is a potential crime.You could also consider reporting this to the ATO. It is theft of Commonwealth revenue. If they are that dishonest their trade skills probably get some shortcuts.

    Making a tip-off

    Its also a offence for Fair Trading and Consumer law in each state. And their license.
     
  3. kmrr

    kmrr Well-Known Member

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    To add to my OP the contractor is not dodgy I work with them commercially and have a close relationship with them. I trust them and am well aware of their workmanship.
     
  4. jaybean

    jaybean Well-Known Member

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    The better idea is just to stop paying tax altogether and keep moving every few months to keep the ATO off your back.
     
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  5. kmrr

    kmrr Well-Known Member

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    just looking for the maths on this one not the morale police. i am more than likely going to go above board but would like to assess the risk vs return.
     
  6. wylie

    wylie Moderator Staff Member

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    If you pay cash and ask for a receipt, then it is up to your tradesman how he treats your payment, isn't it?

    I'm assuming the cash price doesn't come with a receipt.
     
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  7. Shazz@

    Shazz@ Well-Known Member

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    Not an accountant but generally you get 30 cents back for every dollar you spend. So on the $6050 (if you are able to claim as repair), it would mean that you get $1815 back at tax time. Minus that by the original amount = $4235. Compare that to the cash price, not much difference.
    With the invoice, at least there is a track record, and if there are any issues with the repair, you can call them back.
    You pay cash, chances are they can disappear.

    If my maths is wrong, I’m sure that others will chip in. But that’s my understanding.
     
    Last edited: 14th Jan, 2021
    craigc and kmrr like this.
  8. kmrr

    kmrr Well-Known Member

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    This is what a suspected except the contractor isn't going anywhere one way or another.
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Tax crimes are dodgy. Their character is questionable.
    Replies that suggest you can elect the calculation that derives you the best personal tax outcome by being complict in a tax crime is also indication of character...yours.

    You know the correct answer.

    PS : The ATO can issue a notice to PropertyChat for information concerning your identity. (s164 Notice). Paying cash to a contractor may be an offence for the payer as well as the receipient where it can be alleged there has been a conspiracy to defraud the Commonwealth. Who will they prosecute ? Most likely only obtain the contractor identity and the amount paid based on your truthful admission when caught. The contractor would face penalties. Unlikley but it is possible they could allege it and impose penalties allowing you to appeal at a cost far above the amount paid for the skylights.
     
    Last edited by a moderator: 15th Jan, 2021
    Bunbury likes this.
  10. kmrr

    kmrr Well-Known Member

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    Lighten up paul. no crime has been committed its purely a discussion.
     
    Last edited by a moderator: 15th Jan, 2021
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I was making an analogy of both being potential crimes adn that is applicable to act as demonstration. Most people iif asked would find tax crimes and avoidance offensive too. Asking how to circumvent the law also likely is a breach of forum guidelines. PC isnt a forum for seeking advice on how to break a law.
     
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  12. Simon Hampel

    Simon Hampel Founder Staff Member

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    Some relevant reading:

    Some facts:
    • If the tradie is not registered for GST, then they do not have to issue "tax invoices" (they issue "invoices" instead) - but it sounds like they are registered since they quoted a price inclusive of GST
    • Provided that the tradie issues you a tax invoice, then it is no concern of yours how they record the GST and there is no problem here.
    • Paying in "cash" is not illegal - it can be a sensible approach for tradies to offer a discount for cash payment because it helps them with cashflow and avoids the need to chase payment. However, that is only on the basis that they still issue tax invoices and remit the GST component of the payment to the ATO.
    • What is more likely is that the tradie will be claiming a GST credit on the skylights they purchased for you, but won't be remitting any GST to the ATO for the income they received - which is basically theft of tax dollars.
    • They may also be pocketing that cash payment without declaring it as business income, and thus avoiding paying income tax and potentially superannuation as well.
    If you don't have a tax invoice, then you cannot claim a deduction for the work performed.

    The loss of expense you can claim is not $5,500 - $4,000 = $1,500 ... it is $4,000 because you cannot claim any of that as an expense without a tax invoice. Well, you can ... but if you ever get audited, watch out.
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A tradesman who is unregistered may not need to produce a tax invoice but a receipt or paid invoice (missing word "tax") which includes their ABN is a requirement. (Consumer + tax law). I agree, you cannot assume GST (but can check the ABN) however a offer of $5500+GST or $4k cash certainly seems an admission that they are registered for GST and avoiding tax law. All taxable supplies whether suppoprted by a tax invoice or not are subject to GST.

    I have often encountered taxpayers who have lost / misplaced a tax invoice. The ATO will deny the claim even if its just one out of 100 and its an immaterial value. And can add penalties and interest. If they are told "oh it was cash" yes you could expect penalties.
     
  14. coins

    coins Well-Known Member

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    I remember reading on this forum before someone saying pay the cash price. Then ask for a tax invoice. If he doesn't give it to you tell him that he must provide one by law and it's illegal for him not to do it. Tell him if he doesn't give you one you will report him. I believe it's massive fines for him if he gets reported.
     
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  15. kmrr

    kmrr Well-Known Member

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    That's not the way I would treat someone let alone someone I have a positive relationship with.
     
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  16. coins

    coins Well-Known Member

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    Ok, skip the point of reporting him. Just pay the cash price, then ask for the tax invoice. If the relationship is indeed "positive" he would have no problems giving you the tax invoice for the cash price you just paid.
     
  17. Shazz@

    Shazz@ Well-Known Member

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    I think OP knows the cash price comes with no invoice, as per the title of the thread.
     
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  18. wylie

    wylie Moderator Staff Member

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    Agree... so it really does come down to a moral question.
     
  19. TAJ

    TAJ Well-Known Member

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    Many times my partner and I were approached to do jobs for cash, with clients expecting a reduction in fees. Often, they were taken aback when we simply stated we didn't operate that way.
    The blowback from taking cash is simply not worth it. Reputable businesses function on detailed invoices, plain and simple.
     
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  20. jared7825

    jared7825 Well-Known Member

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    Yes but that does not mean you cannot settle a legitament itemised tax invoice with cash, that is different from someone trying to do a “cashy” to avoid tax
     

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