The Cash Economy & The ATO


ATO Commissioner Chris Jordan has vowed to target the tax gaps of small business and individuals to get a grapple on the black economy. 

In his first address to the National Press Club on July 5, 2017, Australian Tax Office Commissioner Chris Jordan singled out the tax gaps of small business and individuals as a focal point for the ATO. 

The tax gap is an estimate of the difference between what the ATO collects and the amount that it would have collected if every taxpayer was fully compliant. 

The ATO has already taken steps to address the issue by establishing a 'black economy task force, as well as targeting under-reporting of revenue via sales suppression technology and software by deleting electronic transactions. Both are due to be banned. 

Increasing audit activities in small business

The issue of sales suppression technology and software was addressed in the May 2017 Federal Budget,  as both enable businesses to understate their income by untraceably deleting selected transactions from electronic records in point-of-sale (POS) equipment. 

In many cases, the income earned from these transactions and tax owing from the income is not reported to the ATO.  The OECD has highlighted the revenue risks that these technologies posed, and legislation is now being developed to prohibit their use. 

A crackdown on cash-based businesses

The ATO has increased its audit activities with small business, and a recent case showcases its approach to assessing the tax payer's obligations even in the absence of documentation. 

The ATO audited a company that operates a café. The company's  sole director and shareholder returned $20,800 as salary and wages in his 2013 individual tax return., However, the company was only able to produce handwritten statements recording daily takings and cash paid for supplies acquired for the café. 

After reviewing the taxpayer's personal bank account statements, the ATO discovered a significant amount of cash deposits and the audit also uncovered that the taxpayer owned a number of residential properties from which he received rental income. 

The taxpayer argued that his parents travelled to Australia from China in August 2012, each bringing with them a large amount of cash for him. This was supported by statutory declarations from his parents. 

However, the AAT did not support the Statutory Declarations made by the taxpayer's parents, given that the parents had answered 'no' to the question of whether they were bringing $10,000 or more incase into the company on incoming passenger cards. 

The AAT found that the tax payer had failed to prove that the Commissioner's assessment of his taxation liability was excessive and he was liable to pay an administrative penalty of 50% on the basis that he made false and misleading statement.

Cash-based Business Always in the Spotlight

Cash-based business is generally always in the ATO's scope finder and with its ever-increasing data matching capabilities; the ATO is uncovering persistent problems with cash-based business. 

What to do if your business is cash-based

Speak to your accountant. They will help you understand the complex record keeping requirements and optimise the tax efficiency for your business legitimately. 

Contact us on 02 9957 4033 for more information.  

Download a PDF version of The Case Econoymy & The ATO 

Last updated July 2017. This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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