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  • About the cash and hidden economy

    Businesses that deliberately hide income to avoid paying the right amount of tax or superannuation are part of what we call the cash and hidden economy. They mainly do this by not recording or reporting all their cash or electronic transactions. This behaviour is unfair to everyone who does the right thing.

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    This video lasts for 30 seconds. Select the play button on the image to view; alternatively, read the transcript.

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    Unrecorded, unreported and unfair

    When businesses don’t correctly record and report all their income and expenses it means honest businesses face unfair competition. It affects all Australians by reducing the amount of money available to fund community services such as health, education and other government programs.

    The cash and hidden economy can also hurt you as an individual. Consumers who support it, by paying cash and not obtaining a receipt, risk having no evidence to:

    • support a claim for a refund if the goods or services purchased are faulty
    • prove who was responsible in cases of poor work quality.

    Put simply, businesses that participate in the cash and hidden economy cheat the community and disadvantage honest taxpayers and, if you’re running a business, you might be facing unfair competition.

    Watch

    Highlights of Senior Assistant Commissioner Michael Hardy discussing the cash and hidden economy with David Koch on Kochie's Business Builders webcast.

     

    This video lasts 4 minutes 38 seconds. Select the play button on the image to view; alternatively, read the transcript.

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    What we are doing about unfair competition

    Our primary objective is to promote fair competition in business and a level playing field for all Australians. We do this by working with businesses that try to do the right thing and dealing with those that deliberately cheat the system.

    Helping businesses doing the right thing

    We support businesses that want to do the right thing, helping you to understand and fulfil your obligations. We continuously improve tax-related information and support tools for you and your representatives, including the following.

    • Manage your invoices payments and records – information and tools to help you maintain good business records, manage cash flow and make sound business decisions.
    • Small business benchmarks – key business ratios for more than 100 different types of businesses that you can use to compare your business's performance with similar businesses in your industry.
    • Starting and running your small business – information on a range of topics that may help you run your business as well as find more information and get support from us.
    • Small business assist – an easy way to find the tax and super information you want.
    • Correcting a mistake or dispute a decisions – a guide to how to correct mistakes in information you have reported to us. If you voluntarily disclose an error that increases your tax or reduces your credits, we are likely to reduce the penalties and interest that apply.
    • Employer essentials – links to useful information that will assist you, as an employer, to meet your Australian Government tax and super obligations and avoid incurring penalties.
    • Personal living expenses guide – which explains the importance we place on examining taxpayers' household expenditure when seeking to identify unreported cash income in the course of reviews or audits.
    • Personal living expenses worksheets – to help you review your business record keeping, determine if your reported income is enough to support your actual lifestyle and assess your risk of being selected for an audit.
    • GST video tips – short videos with simple, practical tips to help you manage GST in your business, including when to register for GST, how to meet your business activity statement obligations, how to keep your records for GST and how to stay in control of your business.

    Detecting those doing the wrong thing

    We use a range of strategies to identify and take action against businesses that may not be correctly meeting their obligations.

    Find out more

    End of find out more

    Data matching

    Our data-matching program is becoming increasingly sophisticated. We collect significant amounts of information from a number of external sources, including banks, other government agencies and industry suppliers. We also obtain information about purchases of major items, such as cars and real property.

    We compare this information with the income and expenditure that businesses and individuals have reported to us. These comparisons allow us to identify businesses that are potentially skimming some or all of their cash takings, running part of their business off-the-books, or in other ways are not reporting all their income. It also makes it possible to identify taxpayers who appear to be spending beyond their means and therefore may be failing to report all their income.

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    It's not worth the risk

    This video lasts 2 minutes 12 seconds. Select the play button on the image to view; alternatively, read the transcript.

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    Example: Unrealistic personal income leads to unreported millions

    A couple operating a property development company were selected for audit because ATO data-matching activities indicated that the income the couple had reported on their personal income tax returns did not appear to be enough to pay their living expenses.

    The audit found the couple's company failed to report millions of dollars from the sale of properties over a number of years. A large portion of the unreported income had been lost through gambling activities and significant funds had been sent to an overseas bank account. The couple and their related companies had evaded tax liabilities totalling more than $4.5 million. As well as having to pay the correct tax on all their income, the couple and their related companies incurred a variety of penalties, including:

    • administrative penalties (based on the tax assessed on those unlodged returns – a minimum of 75% of the tax assessed)
    • false and misleading statement penalties (because of their intentional disregard of their tax obligations and lack of cooperation during the audit – up to 75% of the shortfall between what they were assessed for on their personal returns and what they were finally assessed for when those returns were adjusted to their true income).
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    Example: Data matching uncovers hidden income

    A Melbourne restaurant owner was selected for review based on discrepancies between the business’s reported income and data we received from their bank.

    The owner was given the opportunity to let us know if they had made any errors before we started an audit. The business owner consulted their bank and tax agent and advised that the business had failed to report their entire turnover.

    Following discussions, the business owner made a voluntary disclosure correcting the business’s tax returns for the 2011, 2012 and 2013 financial years, resulting in unpaid tax of $756,678. We accepted this as reasonable because, based on the small business benchmarks, it was equivalent to other businesses in the same industry with the same turnover range.

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    Example: Failing to report online sales

    A Nowra court convicted the owner of a computer sales and repair business on eight charges relating to understating the business’s GST and income tax liabilities.

    The business was selected for audit based on discrepancies between income reported by the business and amounts deposited in the business owner’s bank accounts. The audit detected that the business failed to report the income from online sales.

    The court ordered the business owner to pay $36,813 in unreported tax and $18,406 in penalties. The owner was also fined $4,000 and now has a criminal conviction.

    In sentencing, the magistrate commented that she needed ‘to issue a deterrence to both the defendant and the community’.

    End of example

    Find out more

    Data matching

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    • Last modified: 22 May 2015QC 23443