The Australian Tax Office (ATO) is set to crack down on small businesses and contractors operating in a cash economy as it attempts to claw back billions in unpaid taxes for work done off the books.

The ATO  says it will be shining a light on dodgy dealings in an effort to uncover businesses and contractors dealing in the shadow economy.

ATO targeting shadow economy

Assistant Tax Commissioner Peter Holt said paying cash in hand to avoid paying tax is a significant part of the shadow economy. However, the taxable payment reporting system (TPRS) has been set up to allow the ATO to investigate dodgy dealings. Holt said businesses and contractors paying cash in hand have an unfair advantage over law-abiding business owners.

“It’s not fair if an honest business misses out on sales because a competitor is under-cutting them by doing things like under-declaring or not declaring income. The information we receive in the taxable payments annual report helps us shed light on this and keep things fair,” Holt said.

TPRS helping curtail underreported income

In the last financial year over $350 billion in payments made to 950,000 contractors were reported to the ATO. This year the ATO expects more than 270,000 businesses to complete a taxable payment annual report (TPAR).

TPRS obligations apply to businesses in the building and construction industry, as well as businesses that provide cleaning, courier, road freight, information technology and security, investigation, or surveillance services and have paid sub-contractors in relation to these services.

The ATO is reminding these businesses that they will have to lodge a TPAR with the ATO by 28 August to report any payments they have made to their contractors.

ATO cracking down on tax evasion

Holt said the TPAR is just one tool in the ATO’s arsenal to assist in cracking down on $11 billion a year in missing taxes.

“The ATO has sophisticated data and analytics to identify businesses that fail to lodge a TPAR. Not reporting payments to contractors may be seen as a red flag and will prompt closer scrutiny from the ATO on your own affairs as well as those of your contractors. Trying to “help out” your contractors by not disclosing their payments is a great way of bringing attention on yourself.”

How TPAR works

The TPAR was first introduced in 2012 to level the playing field and ensure businesses in the building and construction industry reported their income and paid their fair share of tax.

The ATO uses information reported on the TPAR to make sure that businesses are complying with their tax obligations, for example, reporting the correct amount of income, lodging business activity statements (BAS) and income tax returns, paying the right amount of tax, being registered for GST if required, and using a valid Australian business number (ABN).

“We know most small businesses do the right thing, however there are some contractors out there who deliberately don’t report or under-report their income, making it unfair for honest businesses.”

“Businesses and tax professionals can view the data the ATO receives about their business, like taxable payments reported under the TPRS, as a reported transaction in ATO Online platforms” said Holt.

Sole traders warned

Holt also reminds sole traders any payments reported to the ATO through TPRS will be pre-filled in their tax return at tax time.

“If you’re a sole trader, any payments you received as a contractor that were reported in a TPAR will be available as a pre-fill information report into your tax return. Whether you lodge your tax return yourself or through an agent, just remember to double check the pre-fill information is complete and correct before lodging, especially as not all your income may have been reported to us previously.”

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