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The taxpayer in question ran a restaurant business. A significant portion of the business — between 25 and 30 per cent of total takings — was by way of cash transactions. The restaurant used
a ‘basic’ cash register but the register did not record sales and did not produce ‘till tapes’. Instead of depositing the majority of this income into the company’s bank account, the
director/shareholder deposited the money into his own bank account. He was audited, and upon the conclusion of the audit, the ATO imposed a significant tax bill on the company based on
estimations regarding takings drawn from industry standards. In addition, because the director deposited the money in his bank account, the ATO declared that the company paid the taxpayer a
dividend which is unfranked as a deemed dividend (under Division 7A). The government has engaged in a strong crackdown on the Black Economy in recent years. Overall, this points to the
increasing risk of using cash payments in business. The penalties were considerable; the impact on the business was disastrous. As a result of the above, the taxpayer has ended up paying
approximately 76.5% tax on this income (30% for the company and 46.5% for the shareholder without the benefit of the tax already paid by the company). In addition to this, the ATO imposed a
50% penalty on the tax unpaid. His deductions were also denied — while the taxpayer maintained that a substantial amount of cash earnings was used to pay for business expenses, he did not
present relevant receipts. This case highlights the importance of ensuring that your returns in a cash business are in line with industry standards. If not, are you prepared to explain why
this is not so using appropriate documentation? It also points to the risks inherent to undisclosed sales. This can potential lead to criminal prosecution for fraud and tax evasion. There is
an important need, furthermore, to keep receipts in order to substantiate expenses. This applies to the cataloguing of grant applications such as for the R&D Tax Incentive or EMDG, as
well as in the use of other small business tax offset calculations — you need to know what you can claim and deduct and what you must declare. External assessment and audit of your
businesses operations, especially if you deal in cash, is likely a prudent idea at this present time. _Hope you enjoyed the read. Now, a little disclaimer. Please note this article is
comment and guide only and should no way act as advice on which you should base your actions. Besides, info, legislation, and the business context is always changing. Consult a professional
before you act._ _If you are interested in more to read, __click here__._