ATO Audit Risk For Cash In Hand Businesses & Individuals

ATO Audit - Cash In Hand Compliance Concerns For Businesses & Individuals Alike
The Australian Tax Office (ATO) Has signalled it is focusing on the cash economy and businesses/taxpayers trying to skirt the system.

An ATO Audit can be a very stressful thing. If your business earns part of its income in cash payments, be prepared to have the Australian Tax Office (ATO) keeping its eyes on you this tax season.

The ATO has recently emphasised it is targeting the cash economy (also known as the shadow economy) in its tax compliance initiatives.

For example, the ATO may look at a sole trader tradesperson (such as a plumber, electrician or other traders) whose reported earnings versus actual spending don’t add up or deviate significantly from the average, which could lead to an ATO Audit.

Another example may be earning cash or other payments through side hustles like freelancing, selling goods at a market, or earning money in hand alongside your full-time job.

The ATO has advised it will be keeping a close eye on businesses and individual traders that deal predominantly in cash, with a focus on those:

  • That fail to register for GST or lodge activity statements or fail to meet super or employer obligations, 
  • That operate outside regular benchmarks specific to their industry and size,
  • That show discrepancies between ATO-collected data relating to electronic payments and what they have reported as income,
  • That operate and advertise as cash-only,
  • Whose income does not correlate with the business owner’s lifestyle, i.e. spending habits or assets exceed what would typically be expected of someone with a certain reported income,
  • That pay their employees in cash,
  • that estimate their sales and income,
  • that use the ‘no sale’ or ‘void’ buttons on cash registers when taking cash payments,
  • That do not keep cash register tapes or reconcile at the end of the day,
  • That are reported to the ATO for tax fraud by others, and
  • That are part of an industry known for dealing primarily in cash transactions.

When out visiting cash-based businesses, the ATO will be working with local authorities and industry associations to ask questions and discuss things like:

  • Why the business operates primarily or only in cash,
  • Why it’s important to lodge tax returns and activity statements,
  • How to make sure you’re compliant concerning tax and super obligations,
  • Different types of 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, and
  • Businesses can use relaying tools and services if they are struggling to ensure they comply with Australian tax laws.

If the ATO comes across a business doing the wrong thing or failing to meet its obligations, it must take action. This may result in the business facing an ATO audit and possible prosecution.

Its 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 concerning lifestyle, and
  • Reconciliations between till takings (z-totals) and banking.

If you make a mistake upon completing your tax return but make a voluntary disclosure detailing your errors, the ATO will work with you to rectify this and create a solution.

One of the best ways you can ensure everything is above board and compliant with your ATO obligations is to engage a registered, qualified and reputable accountant (like us!) who can advise you on what you can and can’t do, and make sure your accounting is where it needs to be. You DO NOT need to skirt the system to get a better tax outcome; a good accountant that spends the time to understand your business and personal circumstances, and uses a no-stone-unturned approach to tax planning and legitimate tax minimisation, is a far better alternative.

The information contained in this publication is for general information purposes only, and does not take into consideration your individual circumstances. You should obtain personalised professional advice before acting upon any information contained herein. To the maximum extent permitted by law, we accept no responsibility for any loss incurred by any person directly or indirectly due to any action taken or refrained from as a consequence of the contents of this publication.

About The Author

Adrian Monarca
Adrian is Co-Founder, CFO, and the Principal Accountant at Float Accounting.