Aussie Tax Reg: Cash-Only SMBs Dodging Taxes

The Australian government is preparing a strategy to combat tax dodging among small businesses amounting to an estimated $11 billion in missing tax payments, News.com.au reported Monday (Aug. 26).

The nation’s Australian Taxation Office (ATO) warned Monday (Aug. 26) that there is an $11.1 billion small business “tax gap” — the difference between income tax collected and what small businesses actually owed. About two-thirds of that gap is attributed to cash-in-hand payments and “black economy” activities, which may include small businesses under-reporting income to reduce their tax burden, exaggerating business expenses, or operating on a cash-only basis to avoid the tax system altogether.

For the 2015-16 tax year, the ATO said the small business tax gap stood at 12.5 percent, marking what reports said is the first time tax regulators have calculated that tax gap.

For individuals, the tax gap is 6.5 percent, reports noted, only about half of what it is for small businesses.

“The majority [of small businesses] are actually trying very hard to do the right thing but there is an element, a small percentage who are not,” said ATO Deputy Commissioner Deborah Jenkins in a statement. “Cash jobs on the weekend or after hours are a large component or they might only put a percentage of their takings through their accounts. We also know people use their business income to pay for their private expenses.”

She also pointed to “classic” black economy industries, including building and construction, hair and beauty, and restaurants, that are dominated by small businesses, broadening the opportunity for those businesses to avoid tax payments.

According to Jenkins, the ATO has “stepped up” its efforts to combat tax dodging among small businesses, adding that much of the ATO’s enforcement is sparked from tipsters calling into the ATO’s Tax Integrity Centre hotline.

“Our mobile strike teams visited 10,000 businesses last year,” she said. “High visibility is really important.”

According to reports, small business tax gaps in other markets around the world can range from 9 percent to as high as 30 percent.