July 15, 2017
July 15, 2017
The Black Economy Taskforce chaired by Michael Andrew AO has been established by the Australian Government in 2016, in response to combat the black economy in Australia, recognising that these issues cannot be tackled by traditional tax enforcement measures alone.
Small to medium businesses across a number of sectors have recently been identified as high risk by the tax office and government taskforce as potentially avoiding tax and contributing to lost revenue. The high risk sectors identified are building and construction, restaurants and cafes and hair and beauty salons. The taskforce also highlighted problems in the hairdressing sector (particularly mobile operators), child care sector, disability services, aged care, labour hire, horticulture and abattoirs. Some sectors are also at specific risk for GST fraud, for example the precious metals industry and property development. The Taskforce has found that the black economy is more than a tax problem, with no single solution.
The taskforce has identified following types of black economy activities that will be thoroughly examined and deterrence mechanisms can range in severity from monetary penalties or fines to prosecution when non-compliance is detected. Some of these activities are listed below:
- Ghosts — operating outside of the system - Businesses which operate entirely outside of the tax system. They often advertise in local papers or online and offer services directly to customers. Some of these businesses are operating in parts of the sharing economy.
- Not reporting income, often cash income - Businesses, both large and small, that don’t report all their income. They can do this by skimming cash and never recording it (including by using sales suppression software), having income going into different bank accounts (and not revealing these to their tax agent or to the ATO), taking cash out of till without reporting the transaction, and keeping two sets of books and records.
- Businesses paying employees cash-in-hand - They often pay below award rates and don’t deduct tax off their employees’ salaries or pay superannuation guarantee and are unlikely to pay workers’ compensation and payroll tax. These employees are sometimes part of labour hire schemes and may be illegally working in Australia. Some of them may be being exploited.
- ABN fraud - Businesses that exploit weaknesses in the ABN system by quoting incorrect ABNs, creating multiple ABNs or improperly using an ABN.
- GST fraud - Schemes where each party to a transaction claims GST credits but does not charge GST, or where GST is claimed but not remitted to the ATO
- Phoenixing - Phoenix activity occurs where a company deliberately liquidates to avoid paying creditors, taxes and employee entitlements. They transfer the assets to a new company and continue operating the same or a similar business with the same ownership. Phoenixing is also used by criminals.
The taskforce interim report published in May 2017 makes nine key initial recommendations and suggests that they intend to examine the merits of consumer-focussed sanctions, including the loss of consumer protections, warranties and legal rights for people who make cash payments without obtaining a valid receipt.
The ATO will continue with its audits across all high risk sectors. The small business benchmarks published by the ATO for a wide range of sectors will be given greater prominence. If a small business is inside the benchmark range for their industry and the ATO hasn't received any extra information that may cause concern, they can be confident that they probably won't hear from the ATO.