ATO targeting business operating as cash only
Businesses operating in the cash economy will be under increased scrutiny in the coming months.
The ATO is looking to continue their fight against the cash economy by visiting various businesses in capital cities that are currently operating as a “cash only” business. The current businesses under scrutiny are cafes/restaurants, hair and beauty services.
The ATO have stated that businesses who use “cash only” services are at a higher risk of not correctly reporting sales. It is estimated that more than half of businesses in the hair and beauty industry are cash only and about 45% for restaurants and cafes.
It is reported that the ATO will be sending officers to visit these types of businesses directly, where they will be collecting information as part of their field work. It is unknown whether an official visit would be after an undercover visit.
“Businesses operating in the cash economy will be under increased scrutiny in the coming months as the ATO continues its fight against the cash economy.”
Risk mitigation steps
In order to stay clear of any issues from the ATO, the best course of action is to stay within the acceptable ATO small business benchmarks. We have listed the small business benchmarks for restaurants, beauty and hairdressing services below for your reference.
Restaurants
|
Key benchmark ratio |
Annual turnover range |
||
|
$65,000 – $500,000 |
$500,000 – $2,000,000 |
More than $2,000,000 |
|
|
Income tax return |
|||
|
Cost of sales/turnover |
31% – 37% |
32% – 37% |
30% – 36% |
|
Average cost of sales |
34% |
35% |
33% |
|
Total expenses/turnover |
80% – 89% |
86% – 93% |
86% – 94% |
|
Average total expenses |
85% |
90% |
92% |
|
Labour/turnover |
17% – 26% |
23% – 31% |
27% – 32% |
|
Rent/turnover |
13% – 20% |
9% – 14% |
7% – 10% |
|
Activity statement |
|||
|
Non-capital purchases/total sales |
56% – 68% |
52% – 62% |
50% – 59% |
Beauty Services
|
Key benchmark ratio |
Annual turnover range |
||
|
$65,000 – $200,000 |
$200,000 – $400,000 |
More than $400,000 |
|
|
Income tax return |
|||
|
Cost of sales/turnover |
15% – 23% |
15% – 21% |
16% – 23% |
|
Average cost of sales |
19% |
18% |
19% |
|
Total expenses/turnover |
64% – 77% |
76% – 86% |
80% – 89% |
|
Average total expenses |
71% |
81% |
85% |
|
Labour/turnover |
22% – 33% |
26% – 35% |
28% – 37% |
|
Rent/turnover |
14% – 23% |
12% – 19% |
9% – 16% |
|
Activity statement |
|||
|
Non-capital purchases/total sales |
46% – 58% |
43% – 54% |
43% – 52% |
Hairdressers
|
Key benchmark ratio |
Annual turnover range |
||
|
$65,000 – $150,000 |
$150,000 – $300,000 |
More than $300,000 |
|
|
Income tax return |
|||
|
Cost of sales/turnover |
12% – 17% |
12% – 17% |
12% – 17% |
|
Average cost of sales |
14% |
15% |
15% |
|
Total expenses/turnover |
54% – 71% |
72% – 84% |
79% – 89% |
|
Average total expenses |
62% |
78% |
84% |
|
Labour/turnover |
26% – 37% |
30% – 41% |
34% – 44% |
|
Rent/turnover |
15% – 22% |
11% – 16% |
9% – 15% |
|
Activity statement |
|||
|
Non-capital purchases/total sales |
40% – 52% |
37% – 47% |
36% – 46 |
If a business is found to be operating outside these benchmarks, it can prompt further ATO investigations. In this case, if you believe your tax affairs are correct, you must ensure that you have good records to support your tax return.
If you find that you have made a mistake in your tax affairs and not recorded some income or expenses, contact us as soon as possible to correct these errors on your tax return or activity statement. If you have any questions in relation to the ATO business benchmarking, please do not hesitate to get in touch.
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
“If a business is found to be operating outside the ATO’s benchmarks, it can prompt further investigations — so accurate records are essential.”
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
The ATO is increasing scrutiny of businesses that operate predominantly in cash.
This reflects broader efforts to combat under-reported cash income and protect the integrity of the tax system.
Cash-only operations can attract attention because they often lack electronic transaction trails.
Without digital payment records, it is harder for the ATO to verify reported income.
Certain industries with high cash usage — such as hospitality and personal services — are higher risk.
These sectors have historically reported higher proportions of cash transactions.
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Frequently Asked Questions
Why is the ATO targeting cash-only businesses?
The ATO is targeting businesses that primarily deal in cash because they are at a higher risk of not correctly reporting sales and may be underreporting income.
Which industries are being specifically scrutinised?
Sectors such as cafes and restaurants, hair and beauty services — where high proportions of cash transactions have been reported — are currently under scrutiny.
What does “operating outside benchmarks” mean?
It means a business’s financial ratios — like cost of sales relative to turnover or total expenses — fall outside the ATO’s industry benchmarks, which may trigger further review.
What happens if the ATO identifies a cash-only business as non-compliant?
If a business is found outside acceptable benchmarks or failing to report income correctly, it may face further investigation — including audits — and may be asked to provide detailed records.
How can a business mitigate the risk of an ATO visit?
Maintaining accurate records, staying within industry benchmark ranges, and correcting errors voluntarily before lodging returns or activity statements can help mitigate compliance risk.
How can a business reduce the risk of ATO issues if it operates with cash?
The article recommends staying within the ATO’s acceptable small business benchmark ranges as a key risk mitigation step.
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