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The Cash Economy and Why Small Businesses Need to Take Note

The Cash Economy and Why Small Businesses Need to Take Note

Author: Admin/Wednesday, May 21, 2014/Categories: Blog

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If you hadn’t noticed, the government is on a mission to save money. And it’s not just in the 2014 budget – over at the Australian Tax Office they have been slowly but surely catching up with small businesses that use cash transactions to avoid tax and other obligations.

While traditionally a large effort has gone into the ‘top end of town’ – ie tax avoidance by large and multi national firms – small businesses are well and truly on the radar. If you ever thought you were too small to matter, you need to start reconsidering.

Why small businesses have something to fear

Don’t say we didn’t want you about the ATOs fixation on the cash economy. That is, businesses that deliberately hide income to avoid tax or super. It’s often through cash transactions but it equally applies to online and electronic transactions, too.

The ATO says it’s just a matter of time until businesses doing the wrong thing are caught out. They always say these sorts of things, of course, but presently we are inclined to believe them because it is clear their approach continues to get more sophisticated.

The ATOs ability to identify cash economy activity now matches its boasts

Eagle eyes may have spotted around $80 million allocated in last year’s budget to the ATO’s data matching capability, with a stated target of recouping $610 million in unpaid tax.

Data matching relates to all the ways the ATO can investigate your business and compare it to industry benchmarks, as well as your reported income. This includes data from state and federal agencies covering all aspects of government, banks and online sales sites such as eBay. The ATO also contacts customers and suppliers to request invoices, receipts, delivery addresses and payment details. Then there’s your customers and competitors – the ATO even encourages ‘dobbing in’ on their website.

It’s not a handful of lowly tax office staff doing the work, either – it’s actually a sophisticated, deliberate and comprehensive system designed to detect fraud and uncover abnormalities in returns. Run through their well publicised, $800 million super computer. It’s not difficult for the ATO to identify businesses that may be skimming from cash takings or running some of their business off the books.

Contact us if you have any concerns about your business transactions

The ATO’s stated goal is to ensure a level playing field for all businesses. Their official line is that businesses using cash to avoid tax are being unfair. This is not a particularly threatening stance but the sting is in the tail because once you are put on notice by way of a letter of audit, it’s too late to go back and cover your tracks.

Whatever your situation, don’t hesitate to get in touch if you are concerned. The ATO has a self-reporting system that’s a good option if you’ve mistakenly or otherwise reported incorrectly, because they do offer leniency for voluntary admissions. We’re happy to help you through the process.

Disclaimer: This information is generic in nature and provided on a discretionary basis only. You must always seek professional advice regarding its applicability to your own circumstance.

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