Demanding cash from customers, paying workers ‘cash in hand’, or not declaring all sales are the most common examples of the 43,000 tip-offs received by the Australian Taxation Office (ATO) in the 2021–22 financial year. The ATO is using intelligence from tip-offs as part of its approach to dealing with the shadow economy.
The shadow economy (previously referred to as the black economy) refers to activities that take place outside of the tax and other regulatory systems. The ATO estimates that the community misses out on around $11 billion in taxes each year as a result of the shadow economy.
Topping the list of industries the ATO was tipped off about in the past year were building and construction, hairdressing and beauty services, cafés and restaurants, road freight transport, and management advice and related consulting services. Tip-offs from New South Wales topped the ATO’s list with over 13,400, followed closely by Victoria (over 11,500) and Queensland (over 9,200).
ATO Assistant Commissioner Peter Holt explained that tip-offs helped the ATO shine a light on tax avoidance and protect honest businesses.
“The last couple of years have been tough for some businesses. But this doesn’t make it okay to gain an unfair advantage over honest businesses playing by the rules. The shadow economy is an economic and social issue that affects all of us. As businesses recover from the impacts of COVID and natural disasters it is more important than ever to protect the vast majority of businesses who are honest and try to do the right thing.”
“Every dollar of tax dodged is a dollar that can’t be used for vital services like health and aged care. We’ve all witnessed over the past couple of years how much the community relies on these critical services,” Mr Holt said.
Mr Holt clarified that it’s not just businesses the ATO has its eye on. “We know that many customers also demand to pay in cash and ask for discounts to avoid paying tax, and we also know that many workers are demanding cash especially where there is a shortage of labour. Our message is – regardless of which party is driving the behaviour – it’s illegal and we’re on to it.”
Mr Holt added that tip-offs from the community provide the ATO with valuable intelligence to assist with current and future investigations, with more than ninety per cent of the 43,000 tip-offs received found suitable for further investigation or retained for intelligence purposes. “Sometimes that tip-off can be the final piece of the puzzle we need to act.”
“We get tip-offs from other businesses, customers, members of the public, even employees. The surge in tip-offs tells us the community is not willing to let this behaviour slide anymore. If these businesses think they can continue to hide in the shadows and not pay their fair share of tax, they are mistaken. It’s not a matter of if the ATO will shine a light on this behaviour, it’s when.”
Mr Holt confirmed that most of the tip-offs came in from Sydney with over 5,600 received. “But the tip-offs aren’t just coming in from the big cities. We also got almost 7,000 tip-offs about shady behaviour from people outside of capital cities last financial year.”
The top five regional locations that the ATO received tip-offs from in 2021–22 were the Sunshine Coast Hinterland (Queensland), Cairns (Queensland), Wellington (New South Wales), Wodonga (Victoria), and the Mornington Peninsula (Victoria).
There are some tell-tale signs that a business may be operating in the shadow economy, for example, ‘cash only’ signs, offering a discount for cash, not accepting card payments, failing to provide payslips to workers, not ringing up sales, or even running illegal software that deletes or modifies sales transactions.
Mr Holt also encouraged tax professionals to look out for shadow economy behaviour. “We’re asking tax professionals to dig deeper and ask their clients more questions when things don’t add up. When reported income falls outside of our small business benchmarks, this should be a warning sign to tax professionals that they need to ask more questions as there could be some shadow economy behaviour at play,” Mr Holt said.
Mr Holt added that while it’s true that digital payments have increased in popularity through COVID-19, this doesn’t mean that the shadow economy has stalled. “There’s a bit of a myth that COVID has ‘fixed’ the shadow economy because people are using less cash. While this may be true for some businesses, we know there is a lot of cash in circulation and it is being used in the shadow economy. Just because digital payments have increased in popularity, this doesn’t mean that the shadow or cash economy has disappeared, it’s still there, and we’re determined to shine a light on it.”
“The ATO will take firm action against business owners who deliberately avoid paying their fair share of tax. We know that honest businesses and the community expects us to do this. It’s all about keeping the playing field as level as possible,” Mr Holt said.
The ATO also confirmed it has received a number of tip-offs as part of Operation Protego, which is investigating significant fraud involving participants inventing fake businesses to claim false refunds.
The ATO values referrals from the community. Tip-offs can be made online at ato.gov.au/TipOff, via the ATO app, or by phoning 1800 060 062. All tip-offs are private and you can remain anonymous. Tax professionals can provide information by phoning 13 72 86 (Fast Key Code 3 4).
- Janis noticed her boss at the nail salon unplugging a cable to the EFTPOS machine regularly, claiming that she was unable to accept card payments from customers. Janis felt guilty when she had to ask customers get cash from an ATM to pay. She also noticed that her boss wasn’t ringing up these cash transactions. This all didn’t add up, so she made an anonymous tip-off to the ATO on her lunch break using the ATO’s app. An ATO officer looked at the tip-off and the total sales being reported by the business. An investigation followed, which revealed that the business owner was not only not reporting sales to the ATO, but was also charging customers GST and pocketing it. The business owner had to pay the ATO the underpaid tax plus a 75% penalty and interest.
- Trent worked as a roof tiler in South East Queensland, having moved there from New South Wales to help on the reconstruction efforts after the floods. He picked up a job very quickly and was earning good money. One of his mates told him that he could earn some extra money by doing ‘cashies’ on the weekend and by working for a builder during the week that paid in cash. He really liked his new boss so he asked him if he could start to pay him in cash instead. The boss declined so Trent went and worked for another builder down the road and got paid in cash, knowing he wasn’t paying tax. His old boss tipped off the ATO and an ATO investigator made enquires into Trent’s tax affairs as well as his new employer. The employer that was paying their workers in cash had to pay the ATO the underpaid tax plus a 75% penalty, and interest, and Trent also had to lodge an amendment to his tax return and pay the unpaid tax, plus interest and penalties.