Small business – Protecting honest businesses
Small businesses play an important part in Australian society. They give people jobs, are a source of income to many people, and they keep the Australian economy strong.
The tax that people and businesses pay to the Australian Government funds important community services like schools and hospitals, so it's important you pay the right amount of tax.
It is also important that we do the right thing by small businesses. Our approach is to protect honest businesses from unfair competition.
Read on to find out more about:
Tax and the cash economy
The majority of taxpayers do the right thing. However, some business owners deliberately avoid paying their fair share of tax. In doing so, they gain an unfair advantage over honest businesses.
If businesses deliberately hide income to avoid paying tax they are participating in the 'cash economy'. Hiding income includes paying cash wages to staff without keeping records, not declaring cash sales, not recording online sales and doing other things to avoid paying tax.
Traditionally the term 'cash economy' referred to just physical cash. But we now see people trying to hide income by not declaring EFTPOS, credit or debit card sales, and online sales.
Protecting honest businesses
To protect honest businesses, we analyse data from all relevant taxpayers to identify anomalies that may indicate someone is not doing the right thing. We then undertake further checks, including:
- checking whether the business income can support the lifestyle of the owners
- comparing an individual business with others in the same industry
- matching data from sources such as Australian and overseas banks, suppliers and Centrelink
- using information from customers and the public.
If a business is not paying its fair share of tax, we can take action to collect the tax and remove that element of unfair competition for other businesses. In many instances the business also needs to pay penalties, and in some instances the business owners can go to jail.
Case study: Data matching uncovers hidden income
We selected Melbourne restaurant owner, Claudia, for an audit because of discrepancies between her reported income and data we received from the bank.
Before starting the audit, we asked Claudia had she made any mistakes. Claudia then talked to her bank and tax agent and worked out she had not reported her entire turnover.
She let us know of the mistake and used a Voluntary disclosure form to correct her business tax returns for the 2011, 2012 and 2013 financial years. As a result, Claudia owed, and paid, an extra $756,678 in tax.
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What you can do about the cash economy
There are a number of ways you can help stop the cash economy. Whether you are a business operator, customer, employee, or tax adviser, your everyday choices and actions will make a difference.
Get a receipt
If you are a customer, insisting on a receipt or tax invoice contributes to an environment where all businesses pay their fair share of tax. Holding proof of purchases also helps ensure a supplier honours a warranty or guarantee.
Report all income and expenses
If you are a business, you must report all your income and expenses to us. This includes cash and all EFTPOS, card and online sales. If you have not reported all of your income, or you think you might have made a mistake, contact us to correct the information.
Check your figures
You can use our small business benchmarks to help you compare your business's performance against similar businesses in your industry. If the figures for your business are very different to those of other businesses in your industry, you may have made a mistake.
We compile these benchmarks from the information and data businesses give us. They are available for over 100 industries. As well as helping you identify whether you have made a mistake, they can help you to understand how to make your business more successful.
We use the benchmarks and other indicators to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. If we notice that your figures are very different to others in your industry, we may contact you to understand the difference.
Report tax evasion
If you suspect a person or business is not reporting income, you should tell us about it so that we can help protect businesses doing the right thing. We review all reports and treat your information confidentially -you don't have to give your name if you don't want to. Your information helps to protect honest businesses and the community.
The cash economy impacts us all. This document outlines the approach we take to protect honest businesses from unfair competition and what you can do.
Find out more
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