ATO benchmarking for cash

The cash economy has been a major focus of the ATO for years and has now been benchmarked to identify and deter activities in the cash economy.

The Australian Tax office (ATO) has just released new categories of small business benchmarks which focus on cash sales, performance and input benchmarks.

By developing these benchmarks, the ATO want to encourage cash industries to self regulate and compare their performance against other businesses in their industry to ensure they are meeting their compliance obligations and to determine if they need to adjust their record keeping practices.

The cash sales benchmarks have initially been developed for 15 industries (no doubt more will follow):

• Restaurants
• Coffee shops
• Takeaway food services
• Newsagents
• Hairdressers
• Beauty services
• Clothing retailing
• Florists
• Pubs, taverns and bars
• Grocery retailing and general stores
• Fruit and vegetable retailing
• Meat retailing and butchers
• Fuel retailing
• Hardware and building supplies
• Garden supplies retailing

These benchmarks will help the ATO to determine the average proportion of cash sales a business should be making and which businesses are not reporting as much cash income as others in the same industry.

This also provides a pointer to a possible future audit by the ATO. Those businesses whose performance falls significantly outside one or more of the benchmarks are more likely to be selected for a review or audit.

The benchmarks have been developed by the ATO using information reported on activity statements and data provided to the ATO by banks. In this regard, the ATO has expanded its data-matching program to obtain information from banks about the total credit and debit card sales of small businesses for the 2009-10 financial year.

The ATO will use the bank data to:

• Establish benchmark ratios for cash sales to total sales for particular industry sectors
• Identify businesses that are potentially skimming some or all of their cash takings or not reporting all their income
• Identify businesses that are operating underground and not participating in the tax system
• Identify businesses that are reporting sales outside the benchmark ratio of cash sales to total sales for their industry segment.

According to the ATO, records relating to approximately 200,000 entities will be matched in the data-matching exercise.

The benchmarks are essentially a guide, and the ATO acknowledges that there may be good reasons for a business reporting outside the benchmarks. Therefore, it is paramount that a business should have good record keeping so it can save a lot of time and cost in dealing with the ATO.

For more information on the ATO new benchmarks, data matching or how you business may be effected, contact us.