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Beware of the cash economy
Wednesday, 14th May, 2014, by Channa Perera
In today's Smart Tax Bulletin:
- Accepting cash and not declaring it
- The ATO data-matching process
Today I would like to bring your attention to a topic that you may have turned a blind eye to – the cash economy (or the black economy).
What is the cash economy?
Many businesses still accept cash for their services and do not declare it.
If you think that’s okay, think again!
I can only give you one answer. Revenue.
The federal government desperately needs to fill its massive $30 billion deficit and pay for the election promises it has made.
They have allocated $107.9 million in funding over the next 4 years to crack down on the cash economy, hoping to raise approximately $490 million in revenue from undeclared income.
So what does this mean? More audits. More checks. More compliance.
How they catch you: the data-matching process
The ATO collect data from:
- major banks;
- credit card providers;
- share registries;
- states and territories; and
- government departments.
They electronically match this data with the records you have provided to the ATO to identify tax payers who failed to report all of their income.
The program identifies the spending patterns of SMEs by comparing their level of income (grouped into low, medium or high turnover) with a range of expenses (percentage-wise), such as labour, rent and materials.
Based on this information, the ATO has found that close to 1.6 million SMEs have high volumes of cash transactions. These businesses are either not reporting income or are operating their business without registering with the ATO.
Between 1 July 2012 and 30 June 2014, the ATO collected data relating to about 900,000 merchants. The data-matching program will scan through 640 million transactions for the 2013–14 year alone.
Other data-matching programs
The ATO has agreements with:
- Medicare Australia (to administer the 30% health insurance rebate);
- ASIC (to capture company transactions);
- Centrelink Data Matching Agency (to provide income information from tax returns);
- Family Assistance Office (to administer the family tax benefit system);
- Child Support Registrar (to assess an individual’s child support payments); and
- Department of Immigration and Citizenship (to identify illegal over-stayers).
The ATO’s expected outcome
The ATO’s aim is to implement an SME benchmark to promote voluntary compliance by increasing awareness and creating a level playing field. This should encourage tax payers to do the right thing and deter those who do not.
Click here to find the Small Business Benchmarks.
Remember: The volume of data the ATO exchanges with other government agencies and private institutions is growing and vast.
So to our readers who are doing business on a knife edge, my advice is do not underestimate these data-matching and data-mining programs and their ability to sense failures in tax compliance.
Next week, I will emphasise the small business-friendly measures that were handed down in yesterday’s federal budget.
Thanks for reading,
Smart Tax Bulletin
Smart Tax Bulletin
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