Credit card data used to help catch tax cheats

Small businesses operating in the cash economy are being targeted, with tax authorities tracking credit card transactions of almost 1 million businesses.

The Australian Taxation Office says data relating to about 900,000 merchants, which it will collect from the major banks and credit card providers, will be electronically matched with ATO records.

The Credit and Debit Card Data Matching Program, now in its fifth year, will enable the ATO to track down businesses that are operating in the illegal cash economy - an area that's historically been difficult for world tax authorities to trace.

More than 1.6 million small businesses in Australia have high volumes of cash transactions. The ATO will match the data provided by financial institutions against tax records to identify those who may not be meeting registration, reporting, lodgment and payment obligations.

It will identify businesses that are not reporting income, or operating businesses not registered with the ATO. Those making high numbers of transactions, but not reporting income to match, will set off alarm bells. Online businesses will also be targeted.

The ATO will collect credit and debit card sales data between July 1 2012 to and June 30 2014 from financial institutions such as the Commonwealth Bank, Westpac, ANZ, American Express and Diners Club Australia and others.

"As part of our compliance activities we will continue scrutiny of businesses deliberately avoiding their taxation obligations," an ATO spokeswoman said. "These businesses are becoming more visible as our data matching activities become more sophisticated."

The ATO has put greater focus on data matching to claw back revenue and in its 2013-14 compliance program revealed it plans to match more than 640 million transactions in 2013-14, from sources such as banks, share registries, employers, merchants, states and territories, and government departments.

Those operating in the illegal cash economy will be targeted through 245,000 reviews and audits.

An ATO spokeswoman said it would help create "a level playing field" for business. "It will encourage taxpayers to do the right thing and deter those who do not," she said.

Deloitte's tax controversy lead partner Ashley King said the problem for the ATO has always been how to catch people who were not registered and who did not conduct transactions electronically.

"The ATO is using the banks records of your business to determine whether you've returned all the income you've received through those accounts, but the challenge is that the ATO still may not find cash receipts of a small business," he said. "That always has and always will be the problem for tax administrators."