Are you dealing in a cash economy business? Be-Aware!

Receiving cash payments for businesses and individuals is legal and convenient. However, you still need to be aware of the inherent risks.

Generally, cash sales and purchases are very common in a small business day to day operations. It is actually very convenient for a business to spend the cash they receive and this is exactly where the issue arises. Keep in mind that there are two transactions happening here, the first one is receiving the money and the second one is spending it and hence these two transactions would need to be recorded accordingly.

To receive and spend cash money is quite tempting for a small business owner and sometimes hard to trace. In this case, there is an inherent risk that the business wouldn’t report the full sales amount or wouldn’t report cash sales at all and this would lead to an underpayment of tax.

From 2018 financial year onwards, the ATO is looking at businesses thataccept ‘Cash Only’ sales in certain industries. It is your responsibility to do the right thing, which means you, as a business owner, should report your total sales to the ATO and pay for the Super and insurance for your employees.

The ATO uses benchmarking and other means to evaluate how much income you may have generated from your business. To estimate the income, ATO looks at your business expenses as well as personal living expenses as a guide to see how much you have spent. Also if you purchased a property or sent money overseas, the tax office can avail these records with ease. To spend that money you need to have earnt it. If there is a discrepancy in what you have reported as assessable taxable income and what you are actually spending, you are in a spot where you might receive ATO officers at breakfast one morning asking questions and interviewing you for your business’s activities.

Some industries such as Restaurants and Cafes, Carwash, Cleaning, Trade professionals and Construction, are on the ATO’s radar as part of the cash economy crackdown and task force targeting the cash economy.

If you are in such a business and need advice relating to record keeping, bookkeeping and accounting and/or advice in regards to how to mitigate risks, we are certainly able to help. Kindly contact our office and we shall be more than happy to schedule an appointment with one of our friendly accountants to help you create a bookkeeping/recordkeeping strategy for your business.