If you’re hiding sales, paying employees cash in hand or underpaying your workers, you’d better watch out. The ATO is actively targeting specific geographic areas for special visits as part of a nationwide crackdown on the black economy, and businesses that take cash payments, give discounts for cash or don’t run sales through the cash register are in their sights.
Last financial year, the ATO visited 26 regions. This financial year, the ATO plans to visit more than 10,000 businesses.
Why is the ATO conducting these visits?
It’s because of case studies like this one – a string of nail salons owned by the one taxpayer was found to have more than $2 million in undeclared income. The ATO’s interest was initially piqued by anomalies between the owner’s lifestyle and assets, and the income being declared from the salons. In another case a restaurant owner was only declaring eftpos payments and not cash payments received (the cash was kept in a shoe box). An audit revealed unreported income and overclaimed expenses of around $1.1m.
How is the ATO choosing their areas?
The ATO says these chosen areas exhibit some statistical anomalies, for example, a higher number of businesses not registered for PAYG or GST. Other indicators that set off the ATO ‘alarm bells’ include businesses that:
- operate and advertise as ‘cash only’ or mainly deal in cash;
- ATO data-matching suggest don’t take electronic payments;
- 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;
- are reported to the ATO by the community for potential tax evasion – the number of reports received by the ATO shows that the community is less tolerant of unfair practices in these industries.
While it’s ok for your business to be outside of the statistical norm, you need to be able to explain why. For example, you might be a gardener with very high deduction claims for equipment outside of the norm for your industry, but a recent large contract may have justified your equipment upgrade.
If ATO officers turn up at your business, they may ask you to show them how you record your sales and ask to see the records for the past day or so. If there appear to be anomalies in your reporting, further action might be taken.
They may also check payroll records to ensure that staff are ‘on the books’ and superannuation entitlements are being met. A classic problem area is cash payments or poor records of family members working in the business. If a family member is employed, unless they are a Director of the business, you need to meet the same standards as if they were not related including minimum wage, PAYG withholding and superannuation guarantee payments.
What you can do to prepare for an ATO visit:
- Have detailed records, particularly if your business predominantly uses cash;
- Make sure your paperwork is up-to-date – invoicing for services provided, recognition of expenses (with receipts), salaries and cash taken out of the business by the owners;
- Ensure staff are recording sales and expenses correctly;
- Ensure your business has a separate bank account – it cannot be your personal bank account.
If you’re concerned that your business may be targeted by the ATO and need a hand getting your records in order, we’re here to help! Just give us a call on 9887 8751 or simply book an appointment online.