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Client Alert: ATO’s Cash Business Crackdown and Risk Mitigation

The ATO is looking to continue their fight against the cash economy by visiting various businesses in capital cities that are operating as a “cash only” business. The current businesses under scrutiny are cafes and restaurants and 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 would be obtaining information as part of their field work. It is unknown whether an official visit would be after an undercover visit.

Risk mitigation steps

The primary risk mitigation steps would be to ensure that your clients in these industries are within the acceptable ATO small business benchmarks. We have already published an event relating the small business benchmarks in the café (or coffee shop) industry here.

The other benchmarks are listed below for your reference. Clients outside the benchmarks should be notified immediately.

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%