July 11, 2022
Small business tax – cash in hand compliance concerns
Does your small business earn a portion of its income in cold, hard cash? Be prepared to have the Australian Taxation Office (ATO) pay extra attention to your small business tax compliance this tax season.
Small business tax concerns
To protect honest, compliant Australian businesses, the ATO has placed a strong emphasis on targeting the cash and hidden economy (known to be a part of the shadow economy). For example, if you’re a sole trader electrician whose reported earnings versus actual spending over the financial year don’t add up, or you’re an employed individual with a side hustle earning cash-in-hand on top of your regular salary, you’ll be flagged.
Compliance red flags
The ATO will then monitor flagged businesses and individuals that deal predominantly in cash, focussing on those that:
- Operate and advertise as cash-only
- Show discrepancies between what they have reported and ATO collected data relating to electronic payments
- Income does not correlate with the lifestyle of the business owner, i.e., assets and spending habits exceed what is expected of someone with their reported income
- Pay their employees cash-in-hand
- Fail to meet super or employer obligations, and fail to register for GST or lodge activity statements
- Operate outside regular small business benchmarks specific to their industry
- Estimate their sales and income
- Use the ‘no sale’ and ‘void’ buttons on cash registers when taking cash payments
- Do not reconcile at the end of the day and do not keep cash register tapes
- Are reported to the ATO by members of the community or any third party regarding potential tax evasion
- Are part of an industry that is known for dealing primarily in cash-only
Small business best practice
When visiting cash-only businesses, the ATO will be working in unison with local authorities and industry associations to ask questions and discuss:
- Why the business operates primarily or only in cash
- The need to lodge tax returns and activity statements
- How to be compliant in relation to tax and super obligations
- Different claims and tax deductions businesses can make
- The general community’s preference for having EFTPOS or electronic payment options available to them
- Benefits of electronic payment and record-keeping facilities
- Relaying tools and services businesses can use if they are struggling to ensure they are compliant with Australian tax laws
If the ATO comes across a business that is doing the wrong thing or failing to meet its obligations, they have a duty to act. This may result in the business facing an audit and possible prosecution.
Small business tax obligations
As a small business owner, it is imperative that you are fulfilling your obligations and know where you stand, particularly with;
- Bookkeeping and record-keeping requirements
- Reconciliations between till takings (z-totals) and banking
- Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
- Consistency of business income between prior and current years, and with reference to lifestyle
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