Cash Economy and Benchmarks
From our November 2010 issue
The ATO has renewed its focus on businesses operating in the cash economy, including in the form of understating income and payment of wages and other remuneration in cash in order to avoid superannuation, PAYG (withholding) and payroll tax obligations.
Benchmarks are used by the ATO to identify businesses that may be operating in the cash economy. The ATO benchmarks are financial indicators, such as the cost of goods sold margin, achieved by other businesses in the same industry.
Businesses that fall outside the benchmark for their industry may receive a letter asking for the relevant taxpayer to provide reasons.
While these benchmarks are drawn over a wide range, it is foreseeable that honest taxpayers who do not engage in fraudulent activities will still be sent such letters, especially where the business does not fall squarely into a specific business category, or the business operates in a geographical area which is not representative of the average population over which the benchmark is drawn.
Such letters are in some instances being sent directly to taxpayers rather than tax agents. Taxpayers who receive such a letter are encouraged to contact their tax advisor.
NOTE
Businesses that receive letters in relation to falling outside the ATO’s benchmarks for their industry should seek advice from their tax advisor in formulating their response.
This information is for guidance only and is not intended as specific advice to any reader. Professional advice should be obtained before acting on any information contained herein. The publisher accepts no responsibility for loss occasioned to any person or organisation as a result of action or the refrain of action as a consequence of the contents of this publication.