$10,000 cash payment limit expected to take effect from 1 January 2020

In the 2018-19 Budget, the Government announced it would introduce an economy-wide cash payment limit of $10,000 for payments made or accepted by businesses for goods and services. The announcement was made on the back of a recommendation by the Black Economy Taskforce as part of a strategy to tackle tax evasion and other criminal activities.  Transactions equal to, or in excess of this amount would need to be made using the electronic payment system or by cheque. The law will make it a criminal offence to breach the restrictions.  The Bill is currently before the Senate and, once legislated, will take effect from 1 January 2020.

Understandably, the change has created some confusion about what transactions may be captured and what the limit applies to, primarily to what extent personal transactions will be included in the limit. To dispel some of the confusion, the government has released information outlining the circumstances in which the limit would not apply in relation to personal or private transactions.

The key thing to understand is that the rules apply if the transaction is made in the course of either party carrying on an enterprise.  This means that, for example, if you purchase goods from a business for more than $10,000 and pay in cash, you would be committing a criminal offence, even if the goods purchased were solely for your private use.

Among other categories, payments that will not be subject to the $10,000 limit include those relating to personal or private transactions (excluding transactions involving real property). The exemption only includes payments that satisfy one of the following:

• payments solely for supplies or acquisitions that are not made in the course of an enterprise;
• payments that are made or received by an entity in circumstances where that entity reasonably believes that the payment is solely for supplies or acquisitions that are not made in the course of an enterprise;
• payments that are made as or as part of a gift (not in the course of an enterprise); and
• payments that are made or received by an entity as a gift (or part of a gift) in circumstances where that entity reasonably believes that the payment is not made or received in the course of an enterprise.

The term “enterprise” in this context has the same broad meaning as the GST Act, meaning that an entity will be undertaking an enterprise if, for example, it carries on a business (or in the form of a business), offers real property for rent, is a charity, political party (or candidate) or other recipient of gifts that are deductible for income tax, operates a super fund, or is the Commonwealth, a State or a Territory or an entity established for public purposes under an Australian law.

In essence, the only circumstance in which an entity will not be carrying on an enterprise is where the entity is acting in a wholly private or personal capacity.

In general, whether a belief is reasonable will depend on the circumstances of the transaction and the parties. However, a reasonable belief must be a belief about the facts and does not protect those ignorant of the law or the legal implications of the facts. In other words, you cannot claim that you didn’t know about the rules surrounding the cash payment limit.

Examples of ‘Private’ Transactions affected by the rules

Cash gifts to family members (as long as they are not donations to regulated entities such as charities) and inheritances are likely to be exempt.  In other words, it is unlikely that you will be prosecuted for a criminal offence if you give your family members a lavish cash wedding gift or help your kids with a house deposit that happens to be over $10,000.

However, if you occasionally sell private assets (eg. a used car) you may need to be careful and take reasonable steps to ascertain whether the other party is acting in the course of an enterprise.  For example, if you sell your car to another individual and you believe the car will be acquired for private use after undertaking reasonable inquiries such as searching the Australian Business Register, then the exemption for personal/private transactions will apply.

On the other hand, if you did not undertake “reasonable inquiries”, and incorrectly believe that the other party is not acting in the course of an enterprise, then it is possible you may be prosecuted for a criminal offence.

Take action

While the $10,000 cash payment limit is not yet law, if you have a business that deals mainly in cash, now would be a good time to transition into electronic payments.  If you would like to understand how the proposed changes will affect either you or your business, and how to avoid falling afoul of the cash payment limit, we can help.