The other day I received a quote for some work to be done in the office.
Business Owners The price quoted was $489.
50 including GST or $445 cash.
Now for some people this may seem like a good deal but for a business it could not be worse.
Problem 1, there is no receipt therefore no tax deduction.
This means I have to earn $635.
71 in order to pay $445 cash to someone, so why would I bother.
Problem 2, there is no warranty and if the work is sub standard you have no come back on the tradesman.
Employers The same applies to people in business that pay their staff cash in hand, without putting them through the books.
You pay young Johnny $200.
00 per week.
For this there is no tax deduction.
If your tax rate is 30% then you have to earn $285.
71 in order to cover Johnny's wages.
If you put the $200.
00 through the books then you would only need to earn $230.
00 to cover the wages, meaning you are around $55.
00 per week better off.
Where does the $230.
00 come from, you pay 9% super = $18.
00 and about 6% workers compensation insurance = $12.
00.
Employees From an employee point of view, he may think he is better off, but no way.
The worker can be sacked at a moments notice; there is no cover for workers compensation in the event of an accident at work, or even on the way to or from work.
There are no paid holidays and no superannuation.
The other point is that on $200.
00 per week there is no tax payable.
Home Owners For the home owner if you are given two quotes, one for say $2,000 and the other for $2,400 including GST, then take the $2,400 job.
You get a receipt and have some peace of mind regarding follow up if something goes wrong.
If, in this case the materials cost $1,000, the tradesman receives $1,400 after expenses.
He pays $127 GST and, on 30% tax, pays around $382 tax, giving him a net profit of $891.
00.
If you paid the cash price the tradesman would have made a profit of around $1,090.
00 some $200 more.
So unless the tradie wishes to share this with you, get a receipt.
In the same example, if the materials only cost $500 the two profit figures would have been $1,209 in the case of a receipt and $1,945 in the cash instance.
So, if the Tradie is making an extra $700 out of you because you paid cash, then he needs to cut his price by a lot more.
Business Owners The price quoted was $489.
50 including GST or $445 cash.
Now for some people this may seem like a good deal but for a business it could not be worse.
Problem 1, there is no receipt therefore no tax deduction.
This means I have to earn $635.
71 in order to pay $445 cash to someone, so why would I bother.
Problem 2, there is no warranty and if the work is sub standard you have no come back on the tradesman.
Employers The same applies to people in business that pay their staff cash in hand, without putting them through the books.
You pay young Johnny $200.
00 per week.
For this there is no tax deduction.
If your tax rate is 30% then you have to earn $285.
71 in order to cover Johnny's wages.
If you put the $200.
00 through the books then you would only need to earn $230.
00 to cover the wages, meaning you are around $55.
00 per week better off.
Where does the $230.
00 come from, you pay 9% super = $18.
00 and about 6% workers compensation insurance = $12.
00.
Employees From an employee point of view, he may think he is better off, but no way.
The worker can be sacked at a moments notice; there is no cover for workers compensation in the event of an accident at work, or even on the way to or from work.
There are no paid holidays and no superannuation.
The other point is that on $200.
00 per week there is no tax payable.
Home Owners For the home owner if you are given two quotes, one for say $2,000 and the other for $2,400 including GST, then take the $2,400 job.
You get a receipt and have some peace of mind regarding follow up if something goes wrong.
If, in this case the materials cost $1,000, the tradesman receives $1,400 after expenses.
He pays $127 GST and, on 30% tax, pays around $382 tax, giving him a net profit of $891.
00.
If you paid the cash price the tradesman would have made a profit of around $1,090.
00 some $200 more.
So unless the tradie wishes to share this with you, get a receipt.
In the same example, if the materials only cost $500 the two profit figures would have been $1,209 in the case of a receipt and $1,945 in the cash instance.
So, if the Tradie is making an extra $700 out of you because you paid cash, then he needs to cut his price by a lot more.
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