How the ATO uses whistleblowers to fight tax evasion

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Every year, the “underground economy” causes the Australian community to lose around $11 billion in taxes that could be used for vital services like health and elderly care.

The underground economy refers to activities that take place outside tax and other regulatory systems, such as asking customers for money, paying workers in cash, or not reporting all sales.

The Australian Taxation Office (ATO) details how it uses information from tips as part of its approach to tackling the underground economy.

How the ATO uses whistleblowers

Community whistleblowers help the ATO fight tax evasion and protect honest businesses. The ATO uses information from whistleblowers to assist in current and future investigations, with more than 90% of the 43,000 whistleblowers received in fiscal year 2021-22 being deemed appropriate for further investigation or retained for intelligence purposes. .

Who is reporting the ATO for shady business practices?

The ATO receives information from other businesses, customers, members of the public and employees across Australia. Denunciations from New South Wales top the ATO list with over 13,400, followed closely by Victoria (over 11,500) and Queensland (over 9,200).

Which companies have “joined” the ATO?

Topping the list of industries that the ATO was briefed on over the past year were:

  • Building and construction.
  • Hairdressing and beauty services.
  • Cafes and restaurants.
  • Road transport of goods.
  • Management advice and related consulting services.

An example is a hairdresser who only accepts cash payments, and does not record these transactions or report them to the ATO. The company can also charge customers GST and pocket it.

Consequences for those who engage in the underground economy

ATO Deputy Commissioner Peter Holt said “The ATO will take strong action against business owners who deliberately avoid paying their fair share of tax. We know honest businesses and the community expect us to do this. It’s about keeping the playing field as even as possible.”

If you are found guilty of tax evasion, you may have to reimburse the ATO for the underpaid tax plus a penalty (usually 75%) and interest.

Signs a business may be operating in the underground economy

Some of the telltale signs that a business may be operating in the underground economy include:

  • “Cash only” signs.
  • Offer a discount for cash.
  • Do not accept card payments.
  • Not providing payslips to workers.
  • Do not ring the sales.
  • Running illegal software that suppresses or alters sales transactions.

The ATO encourages tax professionals to monitor behavior in the underground economy, including when reported income does not meet the ATO’s small business benchmarks, and to “ask more questions of their clients when things don’t fit”.

Key points to remember

People who engage in the underground economy to avoid paying their fair share of taxes don’t just have to worry about falling under the radar of the authorities. Increasingly, responsible citizens are reporting such behaviors to regulators like the ATO. Violators may have to repay the underpaid tax plus a penalty and interest.

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