From our experience, it’s true that most people and businesses are honest and do compete fairly. But there are some that purposely hide income to achieve an unfair (a.k.a. illegal) advantage and to dodge their obligations, such as employee super, income tax and GST.
Such people and businesses hide their income by deliberately not reporting their cash income or electronic transactions. It's these people and this type of behaviour, that comprise what the ATO refer to as the ‘cash economy’ – also known as the hidden / black/ underground economy.
Key concerns about the ‘Cash’ Economy?
The key issues with the ‘cash’ economy is that it disadvantages our community and is completely unfair to honest taxpayers and honest businesses who make every effort to comply with the tax law.
During the last financial year, the Australian Tax Office (ATO) placed a great deal of scrutiny on cash-only businesses and businesses that characteristically transact in cash. The ATO’s scrutiny included random visits to business premises – often resulting subsequent tax audits.
Of the businesses that the ATO visited, roughly seven out of ten businesses were forced to increase the amount of tax they needed to pay. The series of audits has generated nearly $200 million in tax and penalties. What’s most concerning is that the ATO estimates that this is only a fraction of what has been hidden by dishonest businesses.
The ATO has warned that they will be conducting more random audits in 2018. In fact, they have recently sent out letters to taxpayers advising that they’re potentially on the ATO’s radar.
What does this mean to your business?
Businesses such as restaurants, cafes, pubs, hairdressers, nail salons and home-based businesses that typically have high volume cash transactions, can expect contact from the ATO. Specifically, the ATO focuses on business that:
- Operate and advertise as a “cash only” business;
- Do not take electronic payments as indicated by ATO data matching;
- Are part of an industry where cash payments are prevalent;
- Indicate unrealistic income relative to the assets and lifestyle of the business owners;
- Fail to register for GST or fail to lodge activity statements or tax returns;
- Under-report transactions and income according to third-party data;
- Fail to meet superannuation or employer obligations;
- Operate outside the normal small business benchmarks for that industry; and
- Are reported to the ATO by the community for potential tax evasion.
What the ATO is closely looking for in its audits of businesses is the payment and acceptance of cash wages and other transactions that are done ‘off the books’.
Accurate business bookkeeping and record-keeping is a must if you’re running a legitimate cash business. If the ATO detect any discrepancies between your declared income versus the data they glean from third party sources, you may be a subject to further investigation.
Furthermore, you need to make sure you have all standard registrations in place, such as ABN and GST, as a lack of these is sure to trigger unwanted ATO attention.
Transfer to non-cash business model
The ATO has confirmed that it will be ramping up audits on cash businesses in the year ahead. So now is the ideal time to transition to a predominantly electronic - or even cashless - business.
Australia is already tending towards a ‘cashless society’, which means now is the time to begin implementing cashless technology such as card readers.
Aside from ensuring total compliance with the tax law, there are many other business and personal benefits to changing to a non-cash mode. For instance:
- Tax incentives you might have missed out on, by not accurately declaring your full income;
- Happier customers – people expect the convenience of paying by card. With fewer people carrying cash these days, it doesn’t make good business sense to discourage spending.
- Real time, accurate business data - Electronic payment and record keeping facilities give greater visibility over the health of your business. Electronic transaction data is easily pulled into your cloud-accounting software, giving you meaningful business data at the click of a button.
- Avoiding legal issues and penalties for non-payment or underpayment of employee entitlements.
- Eligibility for personal and business lending
If you'd like help with business bookkeeping and record keeping to ensure your tax compliance, and to avoid unwanted ATO attention, please get in touch with our Melton-based accountants for clear, step-by-step guidance - call (03) 9746 6479 or use our online contact form.