The term cash economy refers to economic activity which takes place outside the tax system for the purpose of avoiding tax liabilities. The ATO state that some business owners hide income and don’t pay the right amount of tax or superannuation.
In this coming financial year the ATO will be visiting small businesses across the country. Businesses that advertise as “cash only” will be especially targeted for the visit from the ATO. Restaurants, cafes, vehicle repairers, personal care business including hairdressers and nail salons, pharmacies, construction business, clothing stores, grocery stores, small supermarkets and other businesses that operate with cash will be the main target for ATO auditing.
Consumers who support the cash economy by paying cash and not getting a receipt, risk having no evidence to:
- claim a refund if the goods or services purchased are faulty;
- prove who was responsible in case of poor work quality; and
- claim a tax deduction, where applicable.
The ATO uses a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations. One of these tools is data matching.
Through data matching, the ATO can identify businesses that don’t have electronic payment facilities. These businesses often advertise as ‘cash only’ or mainly deal in cash transactions
The ATO’s ability to match and use data is very sophisticated. They collect information from a number of sources, including banks, other government agencies and industry suppliers. They also get information about purchases of major items, such as cars and real property. They compare this information against income and expenditure that businesses and individuals have reported to the ATO.
The ATO identifies businesses that:
- have advised they no longer operate when they still are;
- the ATO think are operating outside of the system;
- are cash-only, or mainly deal in cash transactions; and
- under-report their real income.
Another tool of combating the cash economy is the Single Touch Payroll (STP) reporting obligation. STP is a new way to report to the ATO employee’s wages, tax and super information. This obligation will be mandatory to all businesses from 1 July 2019.
If you are targeted for audit by the ATO, you should contact us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment. Alternatively, please click here to submit an online enquiry form.
Our experienced tax accountants & tax lawyers are very au fait with the ATO’s audit systems.