The Australian Taxation Office will be investigating 46,000 businesses suspected of underreporting their cash sales and sending please explain letters to a further 110,000 taxpayers.
The ATO has now advised that they have the data available to properly risk check taxpayers for under reporting their cash income. Whilst it has been suspected that the ATO has had the data available for some time, their systems were insufficient to be able to mine the vast amounts of data available. The ATO have recently invested $756 million in IT systems to enable the data mining capabilities required.
The ATO has developed a number of benchmarks across more than 100 industries in which the expected ratios of cost of sales, labour and other expenses are applied.
The benchmarks have been available for some time but the application to all businesses within an industry is fraught with problems. In our forensic accounting assignments we often see businesses that fall well outside these benchmarks and wonder how they could have escaped for so long without an audit. That may be about to change.
Whilst businesses with high undeclared cash earnings may be avoiding paying tax, the cost to their business may be much higher in terms of operational efficiency and barriers to growth. Businesses with undeclared cash often have deliberately poor financial records and systems which hinder their ability to make sound business decisions and grow their buisnesses. Fraud amongst cash businesses is also higher as there are often no internal controls against fraud and the culture of the business supports it (ie. “The boss is taking cash – it is ok for me too”)
We at Dolman Bateman & Co, Chartered Accountants can help you if you are subject to an ATO audit, call us on 9411 5422 or email at firstname.lastname@example.org.