How to manage your cash income? Bank it to use it!
Back in the day, the idea of cash only income was desirable – you could bank it and not declare it – or easily stuff it under your mattress. But times have changed. The ATO can gain instant access to your bank account, with the requirement of ABNs they can see where you have worked, and it is no longer easy to purchase a lot with cash, particularly the more expensive items.
Whilst you still might think it advantageous to not bank your money, there is definitely a downside to it.
Going for a loan – car, home, credit card, etc.
For sole traders to apply for loans, they generally need two years worth of tax returns showing reasonable income. On top of this they need to show at least three months of bank statements showing that income is being received. Not to mention some savings as a deposit. Pretty much if you don’t bank it and want to stay off the radar, your chances of getting any sort of loan or credit card is out of the question. It is also important to note that overdrawing your account severely impacts your ability to service a loan in the banks eyes. You could be GST registered making over $90,000 a year, however if you have more than two Overdraw Fees, the application will probably be knocked back.
Banking under $10,000
There is a myth going around that you can bank up to $10,000 in cash and it not be seen, thus not having to report as income. Whilst these amounts are not reported to AUSTRAC (a Government agency that monitors financial transactions), the ATO can very much still see them and declare as income if they have suspicions.
Expenses- are they deductible if paid with cash?
The only time we are able to use cash receipts as a genuine deduction is if at first the money has been deposited into your account and we have recorded as income. If it never touched your bank account, then we need to include it as income before we take up the deduction.
Cash gifts- are they income?
If you receive ‘gift’ transactions from clients they are not true gifts in the eyes of the ATO. They are considered tips and must be declared as income. Simply writing the word “Gift” on the bank statement line, does not exclude it from income.