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.

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

ATO targeting business operating as cash only

Risk mitigation steps

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