The federal government will introduce new measures on July 1 to thwart small businesses that participate in the black economy.

From the new financial year, small businesses will no longer be able to claim deductions if they fail to comply with their tax withholding and reporting obligations.

This measure is aimed at small businesses that make cash-in-hand payments to staff and that make payments to contractors who don’t provide an ABN.

Assistant treasurer Michael Sukkar said this reform “provides a strong financial disincentive” to engage in this sort of black economy activity.

ATO targeting certain industries

In another measure due to take effect on July 1, the taxable payment reporting system will be extended to include the road freight transport, security and information technology industries.

Small businesses in these industries will have to report payments they make to contractors to the Australian Taxation Office.

The reason is that these industries – as well as the building and construction, courier and cleaning industries, which are already bound by this measure – have been identified as being at higher risk of not declaring their income.

Government tightens its procurement processes

Finally, as of July 1, businesses that tender for Australian government procurement contracts above $4 million will have to provide a satisfactory statement of tax record from the ATO.

This will indicate the business is generally compliant with its tax obligations.

“In the past, suppliers may be outbid in procurement processes by those who have unfairly cut costs by not complying with their tax obligations,” Mr Sukkar said.

“Increasing the integrity of commonwealth government procurement processes promotes good tax behaviour and creates an even playing field for businesses that comply with their tax obligations.”