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Get ready: The ATO is cracking down on cash payments


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Cafes, beauticians and tradies are being investigated.

While credit card and EFTPOS payments are growing, cash is still the payment of choice for small transactions, making up 70% of payments under $20. Many customers prefer it, and as they're being squeezed by card and electronic payment fees, businesses do too.

However, cash payments are causing problems for the Australian Taxation Office (ATO). In the past financial year alone the ATO fielded about 50,000 reports of suspicious activity and audited 10,000 businesses. This led to the tax office recouping over $200 million in undeclared cash earnings.

Cash-in-hand wages were also a major concern and were responsible for 77% of public tax evasion referrals to the ATO.

The industries being targeted

The ATO estimates that 58% of hair and beauty industry businesses are cash only and that almost half of restaurant, cafe, takeaway and catering businesses operate the same way. As such, they're a focus of the crackdown.

Tradies are also being looked at closely, with carpentry, electrician and building trades finding themselves under the same microscope. Certain places, such as eateries in Sydney's Haymarket area, Melbourne's Lygon Street and Northbridge in inner Perth, are also being closely looked at.

Online businesses aren't safe either; the ATO is combing Gumtree and other websites for the services being offered, with a focus on casual jobs in particular.

What not to do

A lot of business owners make the mistake of assuming their employees are just as happy to be paid in cash, but more than 5,500 workers report their bosses each year for doing exactly that. Also, a number of businesses that were investigated for cash transactions were then found to be under-reporting electronic transactions as well.

Dealing with electronic transactions for small purchases can be a potentially costly headache for businesses, but it's safer in the long run. With cash, there's the risk of robbery and the chance of counterfeit bills finding their way into the register. Electronic payments also mean customers are also not limited by how much cash they have in their wallets. Embracing e-transactions can carry some startup costs, but the benefits mean it might well be worth the initial outlay.

Even if a business makes it through the financial year without an audit, that doesn't mean it doesn't have an appointment with an auditor next year. The ATO is getting increasingly sophisticated with its data analysis and a lot better at spotting tax evasion without setting foot in a store. More than 1.6 million small businesses in Australia do high volumes of cash transactions, and of these about 275,000 show some characteristics of under-reported earnings. The main limitation is how many auditors it can put on the case.

What to do

It's definitely better to be ready. Switching to a less cash-focused model can impact your bottom line, but it's probably a lot safer. A flexible and ongoing line of business finance can help with the initial expense as well as adapting business practices afterwards. Also, if international transactions, or otherwise sending money overseas, represent a decent chunk of your business or personal costs it can be worth looking at cheaper options.

It's also a good idea to make sure you're doing your business banking efficiently as everyone starts moving away from cash. This might mean a high interest zero fee business savings account, an unlimited transaction account with minimal fees, or something else entirely – as long as you know what to look for.

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