The Australian Taxation Office has revealed it has received a whopping 43,000 tip-offs from the public for “cash in hand” tax cheats and other “shadow economy” activities.
The shadow economy – previously referred to as the “black economy” – which is estimated to be worth anywhere from $20 billion to $50 billion, refers to activities that take place outside of the tax and other regulatory systems.
The ATO estimates that it misses out on about $11 billion in taxes each year as a result.
According to the ATO, 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 in the 2021-22 financial year.
In one case study cited by the tax office, a woman noticed her boss at a nail salon unplugging a cable to the Eftpos machine claiming that she was unable to accept card payments from customers.
The employee “felt guilty when she had to ask customers to get cash from an ATM to pay”.
“She also noticed that her boss wasn’t ringing up these cash transactions,” the ATO said.
“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 per cent penalty and interest.
“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,” ATO Assistant Commissioner Peter Holt said in a statement on Friday.
“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.”
The worst offending industry the ATO received tip-offs about last year was building and construction, followed by hairdressing and beauty services, cafes and restaurants, road freight transport, and management advice and related consulting services.
NSW saw the greatest number of tip-offs with more than 13,400, followed by Victoria with more than 11,500 and Queensland with more than 9,200.
In another case study, a roof tiler working in South East Queensland had moved from NSW to help after the floods.
“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,” the ATO said.
“He really liked his new boss so he asked him if he could start to pay him in cash instead.”
The boss declined, so the man went and worked for another builder down the road and got paid in cash. His old boss of him tipped off the ATO, which kicked off an investigation into the man and his new employer of him.
The employer had to pay the ATO the underpaid tax plus a 75 per cent penalty and interest, while the worker also had to lodge an amendment to his tax return and pay the unpaid tax, plus interest and penalties.
Mr Holt stressed it wasn’t just businesses in the crosshairs.
“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,” Mr Holt said.
“Our message is – regardless of which party is driving the behavior – it’s illegal and we’re on to it.”
The ATO says the tip-offs provide valuable information to assist with current and future investigations, with more than 90 per cent of the 43,000 deemed 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,” Mr Holt said.
“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 behavior 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.”
While the most tip-offs came from Sydney with more than 5,600 received, Mr Holt said it wasn’t just the big cities.
“We also got almost 7,000 tip-offs about shady behavior from people outside of capital cities last financial year,” he said.
The top five regional locations that the ATO received tip-offs from in 2021-22 were the Sunshine Coast Hinterland and Cairns in Queensland, Wellington in NSW, Wodonga and the Mornington Peninsula in Victoria.
Some telltale indications a business may be operating in the shadow economy include “cash only” signs, offering a discount for cash, not accepting card payments, failing to provide pay slips 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,” he said.
“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 behavior at play.”
He added that despite the increase in digital payments during Covid, the shadow economy was still going strong.
“There’s a bit of a myth that Covid has ‘fixed’ the shadow economy because people are using less cash,” he said.
“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.”
He added, “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.”
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.
Anonymous tip-offs can be made online on the ATO website, via the ATO app or by phoning 1800 060 062.