Beware property developers: taxman targets cash deals

The tax office has increased its scrutiny on companies in the building and construction sectors, and is using new avenues to detect those omitting income. By TERRY HAYES of Thomson Legal & Regulatory

As part of its focus on the cash economy, the tax office has been examining cash transactions in the building and construction industry, especially business-to-consumer transactions that may not have been reported as income.

Property developers and businesses in the building sector should ensure:

• They have up-to-date and accurate identification and registration details available. The tax office has been visiting building sites unannounced (including new private residential sites and major projects) to check these details.
• Their appointment and quote books accurately match invoices for consumer transactions. The tax office has been matching these books to invoices for consumer transactions to make sure they tally.
• Their paperwork from trade suppliers is up-to-date. The tax office has been matching information from trade suppliers to businesses.

The tax office has been tracing owner-builder transactions using local council records, so those involved with owner-builder projects are also being subject to close attention.

It has also been researching local advertisements concerning building-related work, so building industry businesses should ensure their records and invoices are fully up-to-date.

The tax office says it will also be pursuing businesses with outstanding tax debts and lodgments. Recently it audited a concreting company working on major infrastructure projects. The company had outstanding GST and withholding lodgments, which resulted in the tax office collecting a GST liability of $351,165 and a PAYG withholding liability for unremitted amounts of just over $1 million.

The tax office also identified, through council development approvals, an air conditioning company involved in the business-to-consumer market that had not lodged business activity statements (BASs). As a result, the tax office raised GST liabilities of $39,521, unremitted PAYG withholding of $96,254 and income tax instalments of $34,461.

The message is simple – there is no substitute for accurate and up-to-date records of jobs done, material purchased, and receipts for payment from customers. Cash transactions can be seen as a lucrative source of income, but the tax office has access to a wide range of information these days that enables it to “keep its finger on the pulse”.

See also The all-seeing taxman in our Growth Resources section.