Cash-in-hand leniency is well and truly over, ATO says, after receiving 43,000 ‘shadow economy’ tip-offs

The Australian Taxation Office (ATO) has put the small business community on notice, declaring it received more than 43,000 tip-offs about cash jobs in the last financial year — with further crackdowns on the so-called ‘shadow economy’ all but certain.

On Friday, the ATO unveiled new data on its shadow economy enforcement activities, as it cracks down on unregulated transactions estimated to keep $11 billion from the taxpayer each year.

The office received 13,400 tip-offs in New South Wales alone, followed by more than 11,500 in Victoria, and more than 9200 in Queensland.

The most common sectors for cash-in-hand payments were the building and construction sectors, followed by hairdressing and beauty services, cafés and restaurants, road freight transport, and the broad fields of management and consulting services.

This “surge” in tip-offs was led by customers, other businesses, concerned members of the public, and even concerned employees themselves, according to ATO assistant commissioner Peter Holt.

“If these businesses think they can continue to hide in the shadows and not pay their fair share of tax, they are mistaken,” he said.

“It’s not a matter of if the ATO will shine a light on this behaviour, it’s when.”

Entities which falsely report their tax obligations can be forced to repay those amounts, plus a penalty equating to 75% of the tax owed, with interest paid on top.

Huge tip-off numbers come after years-long crackdown

The update comes as part of a long-term ATO strategy to crack down on shadow economy payments.

The 2018 federal budget included $318.5 million in new funding to help the ATO establish and implement “new strategies to combat the black economy”, as it was called before regulators adopted the holistic ‘shadow economy’ terminology.

That funding boost included funds earmarked for the ATO’s tip-off line, as well as improved inter-agency data tools, and mobile ‘strike teams’ designed to uphold compliance with tax regulation.

The ATO declared it would visit 4000 businesses towards the end of the 2018-2019 financial year, in an attempt to quash the use of ‘cashies’ nationwide.

Cash-in-hand payments to employees lost their tax deductible status in 2019.

Some of the more extreme measures proposed to curb the ‘shadow economy’ did not come to pass. Legislation outlawing the use of cash transactions over $10,000 died in the Senate in 2020, for example.

The advent of the COVID-19 pandemic also drew the focus from ‘shadow economy’ activities.

Pandemic restrictions saw many businesses and consumers turn away from cash payments; more broadly, ATO compliance activities, including its pursuit of small business tax debts, took a back seat.

The latest ATO statement suggests the time for leniency is well and truly over.

With workers in high demand across sectors like building and hospitality, Holt said the ATO is also focused on employees which pressure their boss for cash payments.

“We know that many customers also demand to pay in cash and ask for discounts to avoid paying tax, and we also know that many workers are demanding cash especially where there is a shortage of labour,” he said.

“Our message is — regardless of which party is driving the behaviour — it’s illegal and we’re on to it.”