The recent ATO Small Business Tax Gap report highlights a $11.1 billion tax gap, almost two-thirds (64 per cent) of this credited to black economy behaviour such as not declaring income, workers paid cash ‘under the table’ or exaggerating expenses.
Seventy-one per cent of small businesses reported their tax correctly and a further 18 per cent attempted to report correctly but made mistakes, mainly due to poor record keeping or human error.
For the more than four million small businesses in Australia, it is essential to have proper records in place for tax time, so they can substantiate and justify all claims.
Australian tax leader at Chartered Accountants Australia and New Zealand, Michael Croker, says the report is a warning to the millions of small businesses now completing their 2019 income tax returns to ensure documentation is complete and accurate.
“We are pleased to see that the ATO has found Australian small businesses use tax professionals more than those in countries that have reported a larger tax gap,” he says.
“It is important to ensure that all income is recorded and that private components of an expense are not inadvertently claimed as a business expense.
It is also essential for businesses to disclose all financial transactions to your chartered accountant to ensure you are compliant, Croker adds.
“Businesses that do not accurately share their claims need to consider that the ATO has considerable powers to investigate, claim money back and penalise.”
The impact of the few businesses that are participating in the black economy is enormous.
“This is not ‘their’ money, it’s Australia’s money, and each incorrect claim adds up to billions being diverted from Australian services and infrastructure.
“The black economy places undue and unfair competitive pressure on the majority of small business operators who are doing the right thing.”
The Black Economy Taskforce made a number of recommendations to reduce the impact of the black economy and this report certainly gives the argument credence.
“The anonymity of cash ensures those participating in black economy remain under the radar.
“An extremely conservative RBA estimate shows that $1 billion is warehoused by the black economy with a further $5 billion used for operational purposes which represents up to eight per cent of bank notes in circulation.
“Implementing a ban on cash transactions of $10,000 or more will make it more difficult to operate in the black economy with very limited impact on those who prefer cash and operate within the regulatory systems,” concludes Croker.
