The ATO is cracking down on the cash economy, signalling to the community the seriousness with which it responds to those who fail to play by the rules.
The majority of taxpayers do the right thing; however some people undermine the fairness of the tax system by deliberately engaging in the cash economy and deliberately not recording or reporting all of their cash income.
The cash economy impacts on the Australian community by reducing the amount of money available to fund community services such as health and education. Therefore, businesses that participate in the cash economy and don't record and report their cash income cheat the community and disadvantage honest taxpayers.
The ATO is sending a strong message that those who do the wrong thing could end up facing prosecution. Consequences can include criminal convictions, hefty fines and penalties, not to mention the social stigma, which can be hard to shake.
What is the cash economy?
The cash economy is also referred to as the 'black', 'hidden' or 'underground' economy. The essential characteristic is that transactions go unrecorded and unreported.
Cash economy activities include businesses:
- paying unreported wages 'cash-in-hand'
- skimming some or all of the cash takings
- running a part of their normal business activities 'off-the-books'
- not reporting the value of goods and services provided in exchange for other goods and services
- operating underground - that is, avoiding their obligations by not registering or lodging returns.
Case 1 - The builder
A Sydney builder was audited after the ATO received a report from a contractor who indicated that payments were made to the builder for providing services on a project, with payment for the contract totalling nearly $180,000.
Upon investigation, the builder's business activity statements (BAS) didn't show this income, and when questioned, the builder denied any payments were received.
Evidence found in bank statements and records from the owners of the building project showed the builder failed to report $177,500 in income, which led to a tax shortfall of just under $24,000.
He was prosecuted on six offences including recklessly making a statement to a taxation officer that was false and misleading. The builder was fined $18,000 and ordered to pay additional penalties of $17,300. He now has a criminal conviction.
Case 2 - The hairdresser
A hairdresser was recently prosecuted on 10 offences relating to his involvement in the cash economy.
He had previously been audited and was advised to improve his non-compliant record keeping. The taxpayer ignored the advice, continued to receive payment for services in cash and irregularities in his reporting were identified.
Third-party data accessed as part of the ATO's data matching program indicated he had purchased an $80,000 car. A private living expenses analysis found he was spending significantly more than his reported income. When reporting on his BAS, he had under-estimated his income by up to half - which totalled $150,418 over two-and-a-half-years.
He was fined and now has a criminal conviction.
Combating the cash economy
Information about the cash economy and the ATO's expanding ability to deter, detect and deal with those who deliberately evade tax is available at ato.gov.au/casheconomy.
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