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ATO - Investment in Combating the Cash Economy

The ATO uses a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations. One issue is the under reporting of cash sales.

Through data matching and benchmarking the ATO can identify these businesses.

The ATO collect information from several sources, including banks, other government agencies and industry suppliers. They also obtain information about personal purchases of major items, such as cars, home renovations, real property.

The ATO compare this information against income and expenditure that businesses and individuals have reported to the ATO.

Small business benchmarks

The benchmarks are key financial ratios designed to help businesses compare their performance against similar businesses in their industry. Benchmarks are one of the tools the ATO use to help detect businesses that may be avoiding their tax obligations, particularly cash transactions.

The income is compared to what the industry benchmark expected expenses are. These include wages; Cost of Goods (materials) rent; and general expenses. If the ratio is outside of the normal then this will trigger the attention of the ATO.

In addition, further investigation is made to see if the business:

  • has inaccurate and incomplete sales records for business income, such as missing sales records for significant trade periods

  • is not keeping cash register rolls or point-of-sale system printouts

  • is not showing evidence of regular till reconciliations to support daily sales records

If the ATO finds that the business has under reported the income they can use the benchmarks to recalculate the business's income. They then adjust the related tax return and the owners' personal returns based on the recalculated income. Subsequently the ATO issues the business and both owners default tax assessments. This results in penalties; interest and tax payable at the new assessment amount.

The ATO is continually investing in these data analysis tools and they are now very sophisticated.

If you'd like to discuss how this may affect you, please contact us by phone or email.


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