How the ATO is Tackling the Black Economy
The black economy involves dishonest and criminal activities that happen outside the tax system.
It encompasses many elements, from the under-reporting of income and non-payment of superannuation through to serious criminal activities such as money laundering, illicit tobacco and the illegal drug trade.
By avoiding their tax obligations, people participating in the black economy have an unfair advantage, allowing them to undercut people doing the right thing. The Black Economy Taskforce estimated the economic impact of the black economy could be as large as $50 billion in lost revenue each year.
To tackle the black economy head-on, the government has recently implemented the following measures:
Black economy hotline
The new and improved Tax Integrity Centre (TIC) launched on 1 July 2019 and provides a single point of contact for reporting suspected or known phoenix, tax evasion, and black economy activity. The ATO wants the public to report instances where people might not be doing the right thing including:
- demanding or paying for work cash in hand to avoid obligations, such as paying employees super
- not reporting or under-reporting income
- illegal phoenixing which involves deliberately liquidating and re-forming a business to avoid obligations
- over-claiming deductions e.g. paying for home renovations through their business account.
All tip-offs are private and can be anonymous. The ATO only requests contact details in case information provided needs further clarification.
The ATO is visiting businesses around Australia as part of its work to protect honest businesses from unfair competition by addressing black economy activities. As part of this work, the ATO will be visiting up to 10,000 businesses around Australia each year for the next 3 years.
The ATO visits areas identified considered to be higher risk which include:
- unreported or misrepresented sales
- omitted income, including missing payments and online transactions
- overstated expenses
- lack of record keeping knowledge (in terms of sales, expenses, staff, rosters and controls)
- discrepancies between activity statements and tax returns
- businesses that are operating outside the tax system
- when lifestyle and assets don’t match up, like owning property and vehicles that they would need much higher incomes to cover
- businesses reporting outside of the business benchmarks
- not complying with employer obligations
During the visits the ATO will be talking to businesses about:
- record keeping and payment facilities, registrations, outstanding lodgements, tax debts, and employer obligations such as super
- how to fix mistakes
- the benefits of electronic record keeping and payment methods
- ATO tools and assistance products available for them
- any other help they may need.
Depending on what the ATO find during the visits, they may contact businesses at a later stage to follow up (for example, through a phone call, letter or additional visit), and may undertake a review or an audit.
Ban on electronic sales suppression tools (ESSTs)
These tools have been banned since 4 October 2018. Electronic sales suppression tools allow income to be misrepresented and under-reported by:
- deleting transactions from electronic record-keeping systems
- changing transactions to reduce the amount of a sale
- misrepresenting a sales record, for example by allowing GST taxable sales to be re-categorised as GST non-taxable sales
- falsifying POS records
It is an offence to produce, supply, possess, or incorrectly keep tax records using an ESST. It is also an offence to knowingly assist others in committing these offences. Penalties up to 5,000 penalty units (currently $1,050,000) can apply.
The transitional period for the ban on possessing ESSTs ended on 3 April 2019. Anyone who possesses uses, produces or supplies an ESST will be subject to strong action from the ATO as part of the its response to the black economy.
Removing tax deductibility of non-compliant payments
These new laws apply from 1 July 2019 and remove tax deductions for certain payments where the payer has not complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.
The new laws apply to the following types of payments:
- salary and wages, commissions, bonuses or allowances to an employee;
- directors’ fees;
- to a religious practitioner;
- under a labour-hire arrangement; and
- for a supply of services as a contractor where the service provider has not quoted their ABN.
Deductions will be denied for the above payments where the payer has failed to either:
- withhold the amount from the payment; or
- report the amount via their BAS.
There are specific exemptions to these rules as follows:
- a supplier of goods or real property has failed to provide their ABN (these rules only apply to service providers);
- an employer honestly mistakes an employee for a contractor and didn’t withhold PAYG from the payments as an ABN was provided; and
- the taxpayer has voluntarily notified the ATO of a mistake before an audit or compliance activity has commenced.
The new laws won’t deny a tax deduction where no actual payment of the withholding amount has been made to the ATO.
Extension of reporting rules for payments to contractors
Businesses that operate in the building and construction, courier and cleaning industries are currently required to report annually (by 28 August) payments made to contractors for providing these services to the business.
Contractors include subcontractors, consultants and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts.
From 1 July 2019, these reporting rules have been extended to the following industries (first report due by 28 August 2020):
- Road freight services
- Information technology (IT services)
- Security, investigation or surveillance service
Introducing $10,000 cash limit for businesses from 1 January 2020
The government is currently consulting on plans to limit business cash payments to $10,000 for goods and services across the economy as it hopes to tackle tax evasion and black economy behaviour.
This measure is set to apply from 1 January 2020 and will make it a criminal offence for businesses to make or accept a cash payment of $10,000 or more by introducing penalties of up to two years of imprisonment and a $25,200 fine. Transactions equal to, or in excess of this amount would need to be made using the electronic payment system or by cheque.
The cash payment limit will apply to the total price of a single supply of goods or services, regardless of whether the price is split into a series of payments over time.
Payments not subject to the cash payment limit include:
- payments related to personal or private transactions;
- payments that must be reported by an entity under anti-money laundering and counter-terrorism legislation; and
- payments made or accepted by a public official in which the public official is legally required to make or accept cash payment in the course of their duties.