Businesses must keep and retain accurate records to meet their tax, super and employer obligations. While most people try to do the right thing, a small percentage are deliberately under-reporting their income. One of the ways they have been doing this is by using electronic sales suppression tools (ESSTs).
An ESST can be a device, software program or other thing that can interfere with a business’ sales records electronically. This allows sales and income to be under-reported, and in turn, less tax to be paid. This contributes to the shadow economy and is unfair to honest businesses that do the right thing.
As a result, legislation was passed on 3 October 2018 that makes it illegal to:
- produce, supply, possess or use an ESST.
- help others to produce, supply, possess or use ESSTs.
Significant penalties can apply.
ESSTs are constantly evolving and can come in different forms. For example, it could be:
- hardware (for example, a USB drive) that connects to a point of sale (POS) system
- cloud based software that works with a POS system
- incorporated as part of a POS system.
A POS system has ESST functionality if one of the tool's main purposes is to interfere with sales records. For example, an ESST may be able to:
- permanently delete and re-sequence transactions
- change transactions to reduce the amount of a sale
- misrepresent records (re-categorising a product to avoid GST)
- produce fake records.
ESSTs manipulate records so they no longer accurately reflect the transaction. For example:
- a downloaded software program that is compatible with an existing POS system, and specifically designed to manipulate POS system data by erasing certain sales records without leaving a trace
- a USB with a hidden program that deletes certain sales when POS system data is transferred to the USB
- a staff training module added to a POS system with an additional function to change or delete genuine business transactions (not just those that have been entered while in training mode) without leaving a trace.
What isn't an ESST
POS systems often have a feature that allows you to edit or change transactions to fix genuine mistakes. There is nothing wrong with changing a record to make sure that you capture the transaction accurately. For example:
- running a POS system in training mode to teach new employees how to use various functions, such as
- correcting errors and issuing refunds, provided the POS system separates all training transactions from live transactions (for example, where a printer control adds a watermark on receipts to show how they were generated).
- using the ‘void’ function in a POS system to legitimately correct errors by
- reversing the transaction and inputting a new transaction that accurately reflects the actual transaction (a record of this change should be kept in the history log of the POS system)
- marking all receipts with sequential transaction numbers so any void transactions with missing receipts can be identified.
Most POS systems won’t have an ESST, but it is possible that you may also unknowingly have one.
If you think your POS system may have an ESST because it can manipulate records that is beyond fixing a genuine mistake, let us know by emailing us at ESST@ato.gov.au and we can assist you.
What to do if you have an ESST
If your POS has an ESST:
- review the information you have reported on past tax returns and activity statements to make sure it is accurate
- correct your tax returns and activity statements if you have used an ESST to change your sales data and under-report income
- let us know by emailing us at ESST@ato.gov.au
If you have produced or supplied an ESST:
This includes assisting an individual or business to possess or use an ESST, such as a software developer, supplier, maintenance technician or tax professional, we encourage you to do the right thing and let us know.
If you have had any involvement in ESSTs, it’s better to come to us first before we contact you. We may remit penalties that apply.
Not removing your ESST when you have one, or not coming forward when you are involved in producing or supplying an ESST, may lead to an audit, amendments and significant penalties for your ESST involvement.
Penalties apply if you:
- produce or supply an ESST
- possess an ESST
- incorrectly keep records using an ESST.
This includes helping others to do any of the above, for example:
- a director whose actions assist their company to obtain and/or use an ESST to incorrectly keep records
- a registered tax professional or other advisor who helps a client to incorrectly keep records with an ESST
- anyone assisting another business owner to produce, supply or possess an ESST, or to use an ESST to incorrectly keep their records.
Penalties can be criminal or administrative in nature, and the amount of the penalty will depend on what you have done (for example, produce or supply, possess or incorrectly keep records using an ESST).
A penalty applies if you or your business:
- manufacture, develop or publish an ESST
- supply an ESST or make it available for use
- provide a service that involves the use of an ESST.
If you are outside of Australia, the penalties apply to you if the ESST is used to change the records that a business needs to keep under Australian law.
The criminal penalty for producing or supplying an ESST is 5,000 penalty units, and the administrative penalty is 60 penalty units for each ESST produced, or person you supplied an ESST to. If you assist others in taking action that would result in a penalty, then a penalty may also apply to you.
Example: Developer and supplier based overseas
Sandra is a software developer based in Spain. She develops an ESST that allows businesses to delete recorded sales and advertises the tool for sale online.
Geoff owns a café in Brisbane. He purchases the ESST from Sandra’s website, installs it on his POS system and uses it to modify his business’ sales records.
Even though Sandra is not in Australia, she has broken the law by developing and supplying an ESST to change records that Geoff is required to keep under Australian tax law. Geoff has also broken the law by possessing an ESST and incorrectly keeping records using an ESST.End of example
Possessing an ESST includes obtaining, controlling, and having a right to use an ESST.
The criminal penalty for possessing an ESST is 500 penalty units, and the administrative penalty is 30 penalty units. If you assist others in taking action that would result in a penalty, then a penalty may also apply to you.
Example: Possessing an ESST
Kim owns and runs a café. She purchases an ESST enabled POS system for her café. She shows her employees how to use the POS system's ESST function and instructs them to use it to delete cash transactions from the business' sales records.
Kim has broken the law by possessing an ESST when she purchased the ESST enabled POS system for her café.
By instructing her employees to use it on her behalf, Kim has also used an ESST to incorrectly keep records (discussed more in the example below).End of example
It is illegal to keep, make, alter, or prevent the creation of a tax record using an ESST. This penalty can apply to your business even if the ESST is used to incorrectly keep your records by a person outside your business.
The criminal penalty for incorrectly keeping records using an ESST is 1,000 penalty units, and the administrative penalty is 60 penalty units. If you knowingly assist others in taking action that would result in a penalty, then a penalty may also apply to you.
Example: Using an ESST through a third party
Nicole develops a POS system with a hidden backdoor that can be activated to give her remote access. Nicole sells her POS system to Lina for her shop and offers to provide an additional service where she uses the backdoor and changes Lina’s sales transactions using an ESST. Lina agrees and pays Nicole a service fee.
At the end of each month, Nicole uses the backdoor to remotely access Lina’s POS system and run a script to automatically reduce high-value transactions by substituting them for cheaper items.
By acquiring Nicole’s services, Lina has manipulated her records with an ESST even though Nicole was the one using the tool. Lina has broken the law by possessing an ESST and incorrectly keeping records using an ESST.
Nicole has broken the law in this example by producing, possessing and assisting Lina to incorrectly keep records using an ESST.End of example
The Serious Financial Crime Taskforce has released a new Intelligence Bulletin warning businesses against using ESSTs.
ESSTs help people avoid paying the amount of tax they’re supposed to pay. This affects all of us – whether as members of the community or as other businesses trying to compete fairly.
If you suspect a person or business is producing, supplying, possessing or using an ESST, or assisted someone else to do so, make a tip-off to let us know.
You can remain anonymous if you wish, but try to give us as much detail as possible so we can better assess the information, for example:
- name and address of the business
- their ABN or a link to their website
- time and date details
- a copy of any receipts
- other details that make you think they are producing, supplying, possessing or using an ESST.
Refer to How to make a good tip-off.Electronic sales suppression tools facilitate tax evasion by manipulating business sales records to under-report income.