As a general rule, a cash offer means the customer is asking for a 15% discount off the quoted price. How you decide to deal with this is something you should be very clear about when you start your business. While there is nothing wrong with asking for a discount, asking you to not pay GST on the income is unethical.
Consider what you are being asked to do:
- Provide a 15% discount
- Understate your income and therefore knowingly send in false GST returns
This put you squarely in the position of tax evasion, subject to a 150% penalty, a fine of up to $50k and/or imprisonment for up to 5 years. In addition you may face closure of your business and you will not be able to be a director or shareholder in NZ again.
So what do I do?
While cash can be a tempting offer, there are other ways of keeping the customer and staying above board. Perhaps there may be ways to work with the client so they can reduce the bill legitimately, or you may offer a smaller discount if they settle the account immediately – the cash flow benefit could be greater than the discount!
How do I declare cash?
Simply treat it like normal income and bank it like you would a cheque. This will benefit you should you require finance; all of your income is declared and therefore you may be able to loan more. We’ve often seen clients that haven’t banked cash, face difficulty in securing a mortgage.
Would Inland Revenue know?
Yes, Inland Revenue recognise that undeclared cash jobs remain a significant issue and have very creative and innovative ways of determining the average earning for all industries. Click here to see a recent article with more information on this. Our professional advice is that the risk of losing everything is just not worth it.