The Tax Office is actively targeting geographic areas for special visits as part of a nationwide crackdown on the black economy.
This financial year, the ATO has visited 22 regions with another four in progress. Next financial year they plan on visiting over 10,000 businesses.
The ATO is seeking to identify businesses that are hiding sales, paying cash in hand, or are underpaying workers. We have all seen businesses that prefer cash payments (and give discounts for cash), or do not run sales through the cash register. It’s likely that in many of these cases this income is not being reported.
The ATO has a plethora of case studies to support these visits, like the $2 million in undeclared income for a series of nail salons owned by the one taxpayer. 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.
So why these areas? The ATO says these 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:
While it is 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 what is normal for your industry, but a recent large contract meant that you had to upgrade all of your equipment.
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:
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.