It’s tax time, which means that you’re probably preparing to submit your tax return for your business (or, at least, you’re planning to prepare to!). As always, it’s critically important to make sure that your paperwork is accurate, and every year the ATO gets better at catching those instances where it’s not. 

One of the most common ways that businesses try and avoid tax is by under-reporting the revenue they earn from cash – “cashies”.

However, the ATO is getting better at tracking these payments, and the penalties for being found to be in breach can be severe. There are ways to minimise the tax that your business pays, and you should absolutely contact the expert team at EPAS to help you claim every deduction and entitlement that your business is entitled to. 

What you should not do is under-report cash. 

How the ATO tracks cash payments

As the ATO has warned this year, it has upped its game on tracking cashies significantly. It does this through several means:

1)    The Taxable Payments Annual Report (TPAR): Businesses that use contractors are obliged to submit this by August 28, 2023. This

forms one of the core ways that the ATO tracks payments to people who aren’t employees. Contractors are obliged to maintain an ABN, with payments from organisations to the contractor attached to the ABN. This allows the ATO to track the amount of revenue that a contractor has come in across all of their clients.

2)    Data matching: The ATO can compare the information reported by businesses with the data from other sources, such as banks, other government agencies, online platforms, and third parties. This can help the ATO identify discrepancies or anomalies in the income, expenses, or transactions of businesses. For example, if a business reports less income than what the bank records show, the ATO may detect this mismatch and investigate further.

If the ATO then discovers a discrepancy, it will investigate further. It does this through an audit. Through an audit, the ATO can examine the records, books, and documents of businesses, as well as interview the owners, employees, customers, or suppliers. The ATO can also use electronic devices, such as laptops, smartphones, or tablets, to access information stored on them.

What are the penalties for being caught?

If you’re caught for having underreported your income, then not only will you need to pay the balance, but you’ll also likely be penalised. Penalties can range from 25% to 75% of the shortfall amount, depending on the severity of the case. Additionally, there will be interest charges calculated from the date that the tax was due to be paid until the date it is paid. 

Additionally, if tax avoidance is habitual or particularly egregious, it can come with criminal convictions. The maximum imprisonment time could be as much as ten years. 

It’s best to assume that you can’t get away with tax avoidance. That doesn’t mean you won’t be able to find ways to reduce your tax debt obligations, but rather that you should speak to the experts at EPAS for ways to do things “by the book” and avoid concerns about audits and potential penalties. 

And, if you’re not sure about whether you were obliged to complete a TPAR, the deadline for that was this week, so make sure you speak to us as soon as possible to investigate!