Taxman zeroes in on cash economy

Small businesses operating in the cash economy are being targeted, with tax authorities tracking the 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 historically has 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 data provided by financial institutions against taxpayer 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 but are not registered with the ATO. Those making unusually high numbers of transactions but not reporting income to match will ring alarm bells. Online businesses will also be targeted.

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

"Businesses operating in the cash economy undermine Australia's taxation and superannuation systems," a Tax Office spokeswoman said.

"As part of our compliance activities we will continue our scrutiny of businesses deliberately avoiding their taxation obligations. These businesses are becoming more visible to us 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.

The credit and debit card data-matching program falls within that broader objective. Those operating in the illegal cash economy will be targeted through 245,000 reviews and audits.

The spokeswoman said it would help create "a level playing field" for business as well as detecting non-compliance. "It will encourage other taxpayers to do the right thing and deter those who do not," she said.

The move will also help ATO development of small business benchmarks, promote voluntary compliance by increasing awareness, and assist the ATO in building intelligence about businesses.

Deloitte's tax controversy lead partner Ashley King said the problem for the ATO had 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.

Last year it was revealed in a review by the Inspector-General of Taxation Ali Noroozi that almost 6000 small business taxpayers were wrongly accused by the Tax Office of dodging tax. The ATO is working to address several of Mr Noroozi's recommendations around improving its small business benchmarks.