ATO steps up crackdown on cash economy, home renovations and retailers

The Australian Taxation Office announced much-needed tax relief for small businesses yesterday, but don’t think the Tax Man is going soft. The ATO says the downturn is tempting small businesses to “seek an unfair advantage” and has announced it is stepping up its crackdown on the cash economy. Tax Commissioner Michael D’Ascenzo says the ATO has sent 47,000 letters to companies involved in the cash economy and conducted 4200 on-site visits as part of its surveillance programs.

“By detecting unreported cash transactions, many of these through data matching and computer-assisted risk evaluation, we have established more than $45 million in liabilities so far this financial year,” D’Ascenzo told the Council of Small Business of Australia summit in Melbourne yesterday.

As the economy slows further, the ATO’s crackdown is stepping up. It plans to conduct 3700 audits, 8000 visits and send 35,000 letters to businesses it thinks are at risk of cash economy activity.

D’Ascenzo provided details of one case involving a suburban plumber who had lodged income tax returns with net business losses of $84,000 over a two-year period. After an investigation it was found that the plumber had understated his net business income by $394,000 over two years.

“Where we identify taxpayers in the cash economy who deliberately evade tax, we will respond vigorously by working closely with law enforcement agencies to investigate and prosecute those who cheat.”

The ATO has also unveiled a number of downturn targets, including:

• Discount retailers selling high volumes of cheap goods, who typically do well in recessionary environments.
• Sections of the hospitality sector, particularly those offering low-cost products.
• The home renovations sector. “We noticed that in times of tough economic conditions some householders change their plans, from selling their homes and buying other premises to maintaining and upgrading the accommodation they already have,” D’Ascenzo says.

The Tax Commissioner also warned SMEs against taking advantage of tax schemes designed to offset losses occurred during the downturn.

“We have seen abusive tax arrangements involving loss creation, capital gains tax avoidance, self-managed superannuation funds, remuneration arrangements, tax haven abuse …and trust schemes.”