Tax Alert: ATO to target small business black economy

Cracking down on the 'black economy' will be a major focus for the ATO in the new financial year as it tries to reduce the $10 billion small business income tax gap. 

ATO Deputy Commissioner of Small Business, Deborah Jenkins, has noted that the small percentage of businesses deliberately avoiding paying the right tax is contributing significantly to the income tax gap.  

The ATO will be on the lookout for those common 'tricks' used in the black economy - including not declaring income, not putting all sales through the till or invoices, and not reporting income from weekend sales.

A 'mobile strike approach' has been established which will see the ATO visit up to 10,000 businesses around Australia each year for the next three to four years.

The ATO will also be using the taxable payments reporting system (TPRS) to match income tax returns for contractors against what businesses have reported paying. In the 2015-16 financial year, this alone prevented $2.7 billion being lost in the building and construction industry.

From this financial year, businesses that supply courier or cleaning services will need to report payments made to contractors, and from 1 July 2019, businesses in IT, road freight, and security and investigative services industries will need to start reporting through TPRS too.

If you run a small business, make sure you're doing the right thing. A good starting point is the following list of issues the ATO has has highlighted as common among small businesses:

1. claiming private expenses in the business;

2. failing to properly attribute personal and business use;

3. not understanding how tax applies for different and often complex business structures

4. omitting income (including income from coupon sales); and

5. insufficient records to substantiate small business expenses claims.

Of course, if you are unsure about whether you're doing the right thing, give us a call - we are always happy to work through it with you.