Small businesses should consider themselves warned over unpaid taxes in light of the ATO’s tax gap findings, an accounting body suggested, amid calls to further restrict the amount of cash that can be used for business transactions.
Michael Croker, Australian tax lead at Chartered Accountants Australia and New Zealand, said the ATO’s findings on tax gaps — including that small businesses are the biggest contributor to unpaid taxes — are a warning to small businesses to ensure their tax returns are complete and accurate.
He noted that according to the ATO, 71 per cent of small businesses correctly reported their tax while a further 18 per cent had attempted to do so correctly but made errors, often as the result of human errors or poor record-keeping practices.
“It is important to ensure that all income is recorded and that private components of an expense are not inadvertently claimed as a business expense,” Mr Croker said.
“Businesses that do not accurately share their claims need to consider that the ATO has considerable powers to investigate, claim money back and penalise.”
According to the accounting body leader, businesses operating in the black economy are directly reducing the country’s ability to invest in critical nation-building projects.
“This is not ‘their’ money, it’s Australia’s money, and each incorrect claim adds up to billions being diverted from Australian services and infrastructure,” Mr Croker said.
“The black economy places undue and unfair competitive pressure on the majority of small business operators who are doing the right thing.
“The anonymity of cash ensures those participating in black economy remain under the radar.”
Demonstrating the highly divisive nature among accountants of the government’s proposed $10,000 cash limit on payments to and by businesses, Mr Croker suggested it could be a valid means of cracking down on tax avoidance.
“An extremely conservative RBA estimate shows that $1 billion is warehoused by the black economy, with a further $5 billion used for operational purposes which represents up to 8 per cent of bank notes in circulation,” he said.
“Implementing a ban on cash transactions of $10,000 or more will make it more difficult to operate in the black economy, with very limited impact on those who prefer cash and operate within the regulatory systems.”
Lower cash limit even further: MYOB
Despite the findings, MYOB’s general manager of partners, Blake Collins, said it was “encouraging” that the bulk of small businesses are playing by the rules in terms of the payment of taxes.
“This means most small business operators are doing the right thing, and that’s important in making sure the playing field is level for all,” he said.
Mr Collins also expressed support for the government’s proposal to limit cash purchases to and by businesses to $10,000, but went even further and called for that threshold to be lowered significantly.
“We have long been advocates for measures that bring us closer to a cashless society,” he said.
“Our partners frequently tell us that if the government were to reduce this to $1,000, it would make a real difference to operating a small business in Australia.
“Smart technologies that automate and digitise transaction processing are key to enabling small businesses to meet compliance obligations, while providing greater transparency to support the government in better regulating the black economy.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.