One way that the ATO addresses the cash economy is through writing to taxpayers and – where identified in ATO systems – their associated tax agent representatives.
In 2011-12, the ATO is sending letters to registered tax agents identified as having a high number of clients reporting outside the small business benchmarks. We will include a list of the clients, so their tax agents can discuss this with them.
The program includes writing to plasterers and coffee shop operators as part of the approach to improve compliance across these industries.
The 2011-12 letter program consists of the following two types of letters:
- Help and educate letters, to provide taxpayers with details about their tax performance, and links to specific information and tools to help them to comply. For example, letters sent to taxpayers who the ATO thinks may require some assistance with their business and who show a risk of not reporting all their income, or who may be reporting outside of the benchmark norm for their industry.
- Compliance letters, to provide taxpayers with an opportunity to review their information and to let us know more about their personal circumstances or make a voluntary disclosure. For example, letters sent to taxpayers we identify by our data matching program as having purchased a vehicle, although they have not reported an income that would suggest they can afford to do so.
How we identify taxpayers
The ATO uses a broad range of indicators to identify taxpayers who may be seeking an unfair business advantage. These include:
- comparisons of businesses against the small business benchmarks for their industry
- businesses in high risk industries such as plastering and coffee shops
- registered tax agents who have a large number of clients outside of benchmarks
- the results of data matching to identify differences in reported income.
The purpose of the letter program
The letter program informs taxpayers that they have been identified as a result of one of the cash economy indicators. It encourages businesses to review their record keeping practices and their performance against the small business benchmark for their industry.
It also provides information on how to correct their mistakes or make voluntary disclosures.
What happens if an error is identified?
If an error is found on an income tax return or activity statement, taxpayers can advise the ATO in writing . For detailed information on correcting mistakes on income tax returns, please refer to Correcting your tax return or activity statement information on the ATO website.
When taxpayers voluntarily advise us of any errors or omissions before they are notified of an audit or review, any penalties that apply may be significantly reduced. However, the amount of tax owed still needs to be paid.
When advised of errors, the ATO accepts the statement and will correct the error based on the information provided. In some instances, they may contact taxpayers to clarify the details provided.