ATO Targets " Small Business " !

The Australian Tax Office has signalled that this year it will be judging small business by comparison with the profit returns that are normal across such industry segments.   They will be knocking on the door of four thousand little operations between now and July to look for signs of " black economy " activity.

The ATO has at its disposal the business returns of thousands of taxpayers from just about every type of industry that we can imagine.  From that it is possible to calculate the normal expectation of what profit can be expected from each type of business and when one shows the usual level of expenses claimed, but an unusually low profit return it is a reason for a tax audit.

The extent of what is known as the " cash economy " is legendary.  Getting a job done " off the books "was a tax dodge across all types of industry.  Often it also meant that employees received cash in hand for their time  working a " black " job and consequently that made no appearance on a time sheet or contributed to their superannuation fund account.  It has got as lot harder to disguise since reporting laws have tightened on cash transactions.

Buying any significant item today with banknotes is a suspicious activity. It raises eyebrows because it is a very unusual way of paying in this age of electronic money transfers and any cash deposit at a bank in excess of ten thousand dollars triggers notification to the ATO.   A customer buying a new car of making a purchase over ten thousand dollars in cash also obliges the merchant to report that transaction.

This has created a new trade of " money laundering" where  " black " money is siphoned through a legitimate money flow in the hope that it will be significantly disguised to avoid detection.  In particular, this applies to the vast profits made from illegal drugs which are usually paid for in cash to protect both the buyer and the seller.   It is not unusual for a drug bust to result in suitcases of money worth hundreds of thousands of dollars awaiting laundering.

The criminal fraternity has a new problem with the outcome of such crime.  Even if they successfully launder their profits, the luxuries with which they surround themselves require explanation for the tax office.  Luxury vehicles, toys such as water skis and motor bikes need a legitimate wealth source to avoid being confiscated and deemed the proceeds of crime, and unexplained wealth in a bank account can receive similar treatment.

The net is ever tightening and the tax investigators are getting better at placing together the tiny indicators that reveal the profits from any sort of business in comparison with the profit claimed by the owner.  It is now not hard to determine the true expenses of running a business and these deliver a sure indication of the profit level that would be forthcoming.  Dodgy books do not stand up to the rigors of a tax examination.

The tax office is not impressed by people who cry poverty and attend tax examinations wearing a Rolex watch.  In this day and age the  evidence of wealth is on the public record for those who know where to look.