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Tax office focuses on the cash economy

When the economy slows, temptation to reduce or avoid paying taxes increases. The cash economy has been operating for many years, however, changes to technology have now enabled the Australian Taxation Office to place it within its sights.

The Commissioner of Taxation recently outlined the ATO’s Compliance Program for the next twelve months, highlighting a continued focus on the cash economy. Businesses who fail to record and report cash transactions cheat the community and place an unfair burden on the majority of businesses who are doing the right thing. We may see evidence of involvement in the cash economy when taxpayers report unrealistic business income, or have lifestyles that appear to be unrealistically supported by their reported income.

The strategies used by the Australian Tax Office to investigate business suspected of operating under the cash economy include:

1. Working with trade associations to establish benchmarks
Benchmarks enable businesses to assess their own situation and adjust reported income where necessary. They also provide the Tax Office with valuable information to identify those falling outside of the normal operations.

2. Cross-checking between different agencies and organisations
Utilising information from Centrelink, the Child Support Agency, state fair trading agencies, insurance providers, shopping centre operators, product suppliers and the community to help identify unreported income.

3. Reviewing records of luxury goods purchases such as cars and boats
Evidence of purchases are used to identify people with lifestyles not readily supported by their reported income. As part of their strategy, the Tax Office is increasing direct contact with businesses that have high volumes of cash transactions. The letters give advice about the obligations of such businesses and about the importance of proper record keeping. The Tax Office anticipates contacting around 50,000 taxpayers over the next 12 months this way.