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The $10,000 cash payment limit: what small businesses need to know

In the 2018-2019 budget, the Australian Government announced an economy-wide cap on payments made with cash, meaning that business cannot make or accept cash payments of more than $10,000.

So how might this new legislation affect small business owners, and what steps should you take to make sure that you don’t break the rules?

Find out what the cash payment limit means for Australian business and how Debitoor invoicing software can help your business stay compliant

What’s the limit for cash payments?

Under the new legislation, cash payments are capped at $10,000. This means that all transactions equal to or in excess of $10,000 need to be paid for via cheque or through an electronic payment system.

The $10,000 cash payment limit applies to both goods and services, and it covers both B2B and B2C transactions.

However, the cap does not apply to consumer-to-consumer, non-business transactions, nor does it apply to transactions with financial institutions. For example, you can exchange more than $10,000 of cash into a foreign currency through a currency exchange, and you can buy second-hand cars or furniture from private individuals and still pay in cash if the goods cost you more than $10,000.

Why is there a limit on cash payments?

The cash payment limit was introduced as part of the Australian Government’s drive to crack down on fraud, tax avoidance, and black market activities.

Cash is widely used in the black economy because it’s much harder to track than card payments or electronic transactions. Cash payments also make it easier for businesses to avoid their tax obligations as they leave less of an audit trail.

The Australian Government chose the specific figure of $10,000 as it was seen to be a low enough limit to actually curb criminal activities and tax avoidance, but not too low that it would create unnecessary red tape for legitimate businesses. However, there have been calls to lower the cash payment limit even further.

How does the limit on cash payments affect small businesses?

While the $10,000 limit on cash payments is intended to flush out the black market and put an end to tax avoidance, it could have some potential effects for certain small businesses.

If you regularly make sales of $10,000 or more and have customers who prefer to pay in cash, you will need to find a new way to accept payments. This will apply mostly to more traditional industries that haven’t yet switched to online payments, as well as businesses with target markets that still primarily deal with cash, such as the elderly.

Businesses that make large cash payments will also be affected by the new legislation. For example, if your landlord prefers you to pay your rent in cash, you’ll need to start paying by cheque or online transfer.

This might initially cause a bit of upset – people are often wary of change and people can be sceptical of non-cash transactions. However, it’s essential that you do follow the new rules as from January 1st 2020, it will be a criminal offence to either make or accept cash payments of more than $10,000, and doing so could result in up to two years imprisonment and/or a fine of $25,200.

How to follow the new rules on cash payment limits

As you can face fines and jail time if you knowingly accept or make cash payment for transactions worth more than $10,000, it’s important that you take a few specific steps that will stop you from breaking the rules.

The most obvious step to take is to introduce a system for accepting electronic payments.This could simply mean adding your bank details to your invoice template so that your customers can transfer the money to your bank account, but it could also mean trying an integrated invoicing and digital payment system such as the Debitoor and SumUp integration, which allows your customers to pay their invoices straight away online or by card.

You might also want to consider updating your payment terms so that they specifically state that you can no longer accept cash for sales of $10,000 or more, and you could reference the specific legislation if you think your customers might be reluctant to switch to an alternative method of payment.

Finally, most small businesses won’t make sales anywhere near the $10,000 limit, so they don’t need to worry about the new legislation for the time being. But calls for a lower cap on cash payments mean that more businesses could be affected in the future, so it’s worth considering the steps you need to take before they become compulsory.