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  • Protecting honest business

    We know most business owners are honest and that running a business can be difficult.

    Unfortunately, there are businesses that gain an unfair advantage by not meeting all their tax and superannuation obligations. We aim to protect honest businesses from this unfair competition.

    We work closely with industry associations, tax practitioners and businesses to understand any issues they may have. We use up-to-date third-party data and sophisticated risk-analysis to identify who may not be doing the right thing or may need a bit more help.

    We have found that the community has less tolerance for unfair practices than it once did. If you see something, let us know so we can follow it up.

    Find out about:

    See also:

    Visiting business

    Our visits are part of our approach to protect honest businesses from unfair competition by addressing black economy activities. We will work with business and industry associations along with local authorities like chambers of commerce and councils.

    We will be talking to businesses about:

    • record keeping and payment facilities, registrations, outstanding lodgments, tax debts, and employer obligations such as superannuation
    • how to fix mistakes
    • the benefits of electronic record keeping and payment methods
    • ATO tools and assistance products available for them
    • any other help they may need.

    The areas we're visiting are considered to be high risk. This could include:

    • unreported or misrepresented sales
    • omitting income, including missing payments and online transactions
    • discrepancies between activity statements and tax returns
    • businesses that are operating outside the tax system
    • when lifestyle and assets don't match up, like owning property and vehicles that they would need much higher incomes to cover
    • businesses reporting outside of the business benchmarks.

    If businesses need or ask for help, we will help them get back on track as well as show them the ATO tools and information available. However, if we're concerned that a business is deliberately doing the wrong thing, we will investigate further and take any necessary action.

    No matter what kind of business you have, if you're doing the right thing, you don’t need to be concerned.

    See also:

    Verify or report an ATO impersonation scam

    If you're concerned about the authenticity of someone visiting your premises claiming to be from the ATO, you can phone 1800 008 540 to confirm ATO activity in your area.

    Areas we've visited

    We have visited businesses in the areas of:

    • Surry Hills/Darlinghurst (NSW)
    • Cairns (QLD)
    • Bunbury (WA)
    • Canberra and surrounding areas (ACT)
    • Busselton (WA)
    • Adelaide (SA)
    • Broadbeach (QLD)
    • Box Hill (VIC)
    • Haymarket (NSW)
    • Geelong (VIC)
    • Alice Springs (NT)
    • Caloundra (QLD)
    • Wollongong and surrounding areas (NSW)

    If you've made a mistake

    If you realise you've made a mistake, or left something out, it's better to come to us first. Reduced penalties may be applied, for example if you:

    • haven't told us about income you have earned, including cash payments
    • claimed deductions you weren't entitled to
    • made any other statement to us that was false or misleading.

    See also:

    Report a concern

    If you have information about someone you think may be deliberately evading tax, you can report it to us confidentially.

    Try to provide as much detail as you can so we are able to fully assess the information.

    Next step:

    Expect to hear from us

    Businesses that cause us concern can expect us to follow up, initially by a letter that could include recommending they:

    • lodge a voluntary disclosure because we consider them to be at risk of not reporting all their income and they may be subject to an audit
    • invest in an electronic payment and record keeping system to reduce the risk of mistakes and meet consumer preference
    • attend ATO record keeping information sessions that are available around the country and can be booked online at Small business workshops and webinarsExternal Link
    • know their tax obligations if they have employees, such as pay-as-you-go withholding and superannuation.

    See also:

    Why we are writing to businesses

    Businesses that our data matching shows don't take electronic payments will receive an email or letter highlighting the benefits of investing in an electronic payment facility.

    There are many inexpensive electronic payment options available that are easy to set up, including EFTPOS, smartphone and tablet card processing.

    Some of the benefits include:

    • consumers are going cashless and expect to have a choice
    • fewer mistakes – so less contact from us
    • quicker reconciling at the end of the day – less time in queue at the bank
    • less chance of being presented counterfeit notes
    • reduces the risk of theft or break-ins.

    Findings from past visits

    During our visits around the country we found businesses that:

    • don’t have business bank accounts – it’s important to separate business and personal income
    • don’t record all sales or keep proper books                
      • keeping good records lets you know how your business is really doing
      • businesses with electronic payment and accounting systems told us it saves them time because the basics are done for them
    • had friends, family and other employees working ‘off the books’
    • most were happy to see us and take advantage of getting one-on-one advice.

    Businesses we visited in the past

    We have visited businesses in the areas of:

    • Cabramatta (NSW)
    • Werribee (VIC)
    • Sunnybank (QLD)
    • Liverpool (NSW)
    • Glen Waverley (VIC)
    • Glenelg (SA)
    • Batemans Bay (NSW)
    • Mandurah (WA)
    • Toowoomba (QLD)
    • Chatswood (NSW)
    • Melbourne (VIC)
    • North-West Adelaide (SA)

    We focused on businesses that:

    • operate and advertise as 'cash only' or mainly deal in cash
    • our data matching suggests they 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 us by the community for potential tax evasion – the number of reports we receive shows us that the community is less tolerant of unfair practices in these industries.

    Results from past visits

    Hair and beauty industry

    Our recent activities have resulted in:

    • an increase of around 4% in timely lodgment of activity statements compared to the 2015 financial year
    • an increase in GST registrations being corrected
    • more timely payments of income tax and activity statement liabilities
    • a reduction in outstanding payment obligations
    • business owners being supported and educated to make informed decisions about their tax obligations.

    Here are some examples of how we have dealt with businesses that have not met their obligations.

    Example 1: Business owner's lifestyle didn't match their reported income

    A nail salon business with a number of outlets was selected when data matching indicated anomalies. Our initial investigation confirmed that the owner kept incomplete records and declared income that didn’t support their lifestyle and assets.

    We uncovered more than $2 million of undeclared income.

    After imposing penalties for reckless behaviour of over $241,000, the total amount of GST, income tax and penalties payable by the owner was more than $728,000.

    End of example

    Example 2: Poor record keeping leads to penalties

    Acting on concerns from a member of the public, we investigated a hairdresser and found that the business owner couldn’t account for all of their expenses.

    The owner told us they didn’t know how to keep good records and had never sought advice about how to do this from a tax professional.

    GST and penalties on over-claimed expenses payable by the owner were over $50,000.

    End of example

    Restaurant, cafe, takeaway and catering industry

    Our recent activities have resulted in:

    • an increase of over 6% in timely lodgment of activity statements compared to the 2015 financial year
    • corrections to GST registrations
    • an increase in timely payments of income tax and activity statement liabilities
    • business owners being supported and educated to make informed decisions about their tax obligations.

    Here are some examples of how we have dealt with businesses that have not met their obligations.

    Example 1: Undeclared income and inflated expenses

    When visiting one business, our staff noticed the Australian business number (ABN) quoted on cash register sales receipts varied. When we asked about this, the owner made voluntary disclosures about over-claimed expenses.

    During the audit, we also found further unreported income and more over-claimed expenses. This led to adjustments of more than $1.1 million. Penalties imposed on the tax shortfall were reduced by just over $12,000 because of the disclosures.

    GST, income tax and penalties payable exceeded $211,000.

    End of example

    Example 2: Tracking cash payments

    During one of our visits to a restaurant, it was apparent the owner needed to improve their record keeping practices as cash was kept in a cardboard shoe box.

    Our profiling work showed five merchant IDs, which the taxpayer told us belonged to five different restaurants operating under this entity. All had the same poor record keeping processes.

    Our analysis identified several bank accounts, and third party information identified deposits in excess of $300,000 for 2014 and 2015. We identified $1.3 million of understated income for 2014 and $1.5 million for 2015. We calculated cash not deposited by developing a ‘cash deposit timeline’ for each restaurant.

    It turned out that no cash had been reported to us, and only EFTPOS income had been included in tax returns and activity statements.

    End of example

    Building and construction industry

    Our recent activities have resulted in:

    • an increase of around 5% in timely lodgment of activity statements compared to the 2015 financial year
    • over 760 businesses in the building and construction industry have been shown our range of online tools and services since July 2016.

    Here are some examples of how we have dealt with businesses that have not met their obligations.

    Example 1: Failing to lodge and not reporting cash income

    A licensed carpenter failed to lodge tax returns for a number of years. We demanded lodgment and when the tax returns were lodged, it was clear that income from cash jobs weren't included.

    We conducted an audit for the 2006 to 2013 financial years and found that the taxpayer had over-claimed input tax credits in addition to not declaring cash income. Their record keeping was very poor and they couldn't explain how some materials and vehicles were funded.

    The audit resulted in the taxpayer owing additional tax and penalties of over $190,000.

    End of example

    Example 2: Failing to report cash income

    We identified a company in the building and construction industry that hadn't reported over $970,000 in cash sales over a two-year period. The omitted income had been transferred into nine personal bank accounts as employee payments, including the company director. The nine employees also didn't report this income in their personal income tax returns.

    This resulted in over $90,000 GST payable by the company with failure to withhold penalties of over $200,000 on the wages provided to its employees.

    The total shortfall of income tax payable by the individuals was $277,000 with penalties of over $175,000.

    End of example
      Last modified: 20 Dec 2018QC 35984