Businesses illegally using ESSTs
The Serious Financial Crime Taskforce (SFCT) is aware of businesses using ESSTs to under report their taxable income.
With an increased use of digital technologies and online interactions, we are seeing:
- businesses supplying and using ESSTs or software to avoid paying tax
- businesses connecting ESSTs to point-of-sale systems to
- permanently delete, re-sequence or misrepresent transactions
- reduce sales values
- produce fake tax records
- ESSTs taking the form of cloud-based software and linking to domestic and offshore payment platforms.
It has been illegal to produce, supply, possess, use or promote ESSTs in Australia since October 2018.
Taskforce action
The SFCT is providing a strong warning to businesses about ESSTs.
We understand there are sophisticated networks of operators actively developing and marketing these tools to small business owners. They often package them as an ‘all-in-one complete business solution’ with low commissions, website presence and an online ordering tool.
To identify these businesses, we use:
- intelligence and data on lifestyle indicators
- bank information
- small business benchmarks
- tip-offs from the community.
These businesses will be dealt with the full force of the law.
What should you do?
If you are a business using ESSTs, we strongly encourage you to come forward and make a voluntarily disclosure rather than wait for us to contact you. We may be able to reduce your penalties.
Business owners should exercise reasonable care when choosing a point-of-sale and other business systems to ensure they:
- meet their business needs
- comply with the law.
If you suspect a person or business is involved in producing, supplying, possessing, using or promoting ESSTs or software:
- make a tip-off online
- phone the hotline on 1800 060 062.
If you prefer to speak with us in a language other than English, you can call the Translating and Interpreting Service (TIS National) on 13 14 50 for help with your call.
Download the SFCT ESST Intelligence Bulletin (PDF, 117KB)This link will download a file factsheet.
Case study
Choosing the right point-of-sale system
When purchasing a point-of-sale system for your business, make sure you exercise due diligence and thoroughly research a product before purchasing.
Dodgy operators are manufacturing point-of-sale systems with electronic sales suppression tools (ESSTs).
ESSTs take on many forms – devices, hardware, cloud-based software or sometimes something entirely different. This illegal software allows businesses to understate their income by untraceably falsifying, manipulating, hiding, deleting, or preventing the creation of selected transactions from their electronic records.
They are marketed to businesses as integrated business products and solutions with online ordering, interactions with web content, registered and unregistered payment platforms, FinTech, and marketing solutions. Many of these are offered on a subscription service-based format, typically with ongoing weekly or monthly service fee offerings, with low upfront costs.
Through ESSTs:
- these operators can steal money
- steal client data
- hold business owners to ransom
- assume web domain names and
- alter public facing business information, such as hours of operation.
If it seems too good to be true, it probably is.
Example: Sabrina's fish and chip shop
Sabrina is the owner of a fish and chip shop. Her business has always been a cash business which made it easy to pay her employees from the till and under-declare her takings. Sabrina knew this wasn’t right but she continued to try to find ways to avoid her tax obligations.
Tech-savvy Sabrina caught wind of a product that could help her reduce her tax income – an electronic sale suppression tool (ESST). She purchased a new point-of-sale system for her store from a dodgy operator who attached a cloud-based ESST to it.
For a while, Sabrina continued to run her business as usual. The illegal ESST manipulated the store’s transaction records and she was able to delete and re-sequence transactions at the touch of a button.
Sabrina used the extra money to quickly pay off a large mortgage on a seaside property, buy a boat and transfer money to her family overseas.
What Sabrina didn’t know was that one of her employees had noticed something strange. When closing up for the day, Paul observed that the point-of-system transaction record was showing unusually low profits for one of their busiest days. He proceeded to look over the previous week’s transaction records and found that this discrepancy kept occurring. Paul found this suspicious, so he contacted Australian Taxation Office tip-off hotline to report it.
After the tip-off was received by the ATO, the matter was referred to the Serious Financial Crime Taskforce (SFCT) who began an investigation into Sabrina’s tax affairs. Upon closer inspection, the SFCT found:
- Sabrina’s personal spending was up to 8 times the amount declared as income
- her business’ income was underdeclared and the funds were deposited directly into her personal bank accounts
- unexplained transfers of money to overseas accounts
- SFCT officers found evidence of an ESST attached to the business’ point-of-sale system.
After a full review, the SFCT found that over 5 years of Sabrina running her business, there was close to $4 million of business income not reported.
There was also strong evidence to show that Sabrina is well educated and had knowledge of correct business processes but made a deliberate choice to not declare her income correctly in her tax returns.
The estimated penalties that Sabrina is now liable to are around $1.4 million.
End of example