Cash might be king, but the use of cash by businesses is attracting attention from the ATO. It will begin visits of selected businesses to ensure that all tax obligations are met. Third-party data and risk analysis is being used to identify the types of businesses the ATO will visit, which will not be limited to one particular industry this time around.
In this competitive economic environment some businesses are increasingly turning to cash payments to dodge their tax obligations. This is becoming such an issue that the ATO has started a program of visiting businesses across Australia that may be using cash inappropriately or operating in the hidden economy.
A wide variety of resources including third-party data and risk analysis will be used by the ATO to identify the type of businesses it will visit. These include businesses that:
- operate and advertise as “cash only” or mainly deal in cash;
- do not take electronic payments according to data-matching;
- are part of an industry where cash payments are common;
- indicate unrealistic income relative to the assets and lifestyle of the business and its owner;
- fail to register for GST or lodge activity statements or tax returns;
- under-report transactions and income according to third-party data;
- fail to meet super or employer obligations;
- operate outside the normal small business benchmarks for their industry; and
- are reported by the community for potential tax evasion.
A wide net is being cast to target all businesses that could potentially be avoiding their tax and superannuation obligations. In the course of the visits, where there are suspicions of wrongdoing, the ATO will follow up, initially by a letter which could include recommendations such as:
- lodging a voluntary disclosure to mitigate the risk of an audit or potential prosecution;
- investing in an electronic payment and record keeping system to reduce the risk of mistakes and meet consumer preference; and
- attending ATO record keeping information sessions.
In the last round of visits, three common issues of not having separate personal and business accounts, not recording all sales or keeping proper books, and having employees working off the books were found, and over 60% of businesses visited required some kind of corrective action.
The hair and beauty, restaurant, cafe, takeaway and catering, and the building and construction industries all reported an increase in timely lodgement of activity statements after being targeted by the ATO for specific attention.
As a part of the visits, the ATO will also be working with industry associations and local authorities to educate businesses on the use of electronic payment and record keeping facilities, online lodgement, superannuation obligations to employees; proper registration and meeting of obligations, and help with business specific issues.
To ensure that you and your businesses are not targeted under this operation, or that if you are targeted, you do not get a follow-up, the following broad suggestions may help:
- deposit all cash payments into bank accounts;
- keep evidence to support all income, expenses and lifestyles;
- account for any stock used for private purposes; and
- work out the performance of the business relative to other similar businesses in the same industry using the small business benchmarks.
If you need help with documenting your business income, expenses and stock or calculating whether your business is performing within the small business benchmarks, contact us today.