The black economy includes people who don't correctly report and meet their tax obligations, and people who operate entirely outside the tax and regulatory system. The Government and the ATO consider the black economy a significant economic and social problem. The Australian Bureau of Statistics estimated in 2012 that the black economy could be as large as 1.5% of Australia's gross domestic product, or around $25 billion.
The Federal Government established the Black Economy Taskforce in 2017 "to develop an innovative, forward-looking whole-of-government policy response to combat the black economy in Australia, recognising that these issues cannot be tackled by traditional tax enforcement measures alone". In its Interim Report (released May 2017) the taskforce noted that a range of trends, vulnerabilities and other considerations suggest that the black economy could be larger today, and made a number of initial recommendations based on the experience of foreign jurisdictions, extensive consultation with stakeholders and the anecdotal evidence that the taskforce received.
The Government has now introduced the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 into Parliament. It proposes to combat the black economy by:
- prohibiting the production, distribution and possession of sales suppression tools;
- prohibiting the use of electronic sales suppression tools to incorrectly keep tax records; and
- requiring entities that have an ABN and that provide courier or cleaning services to report to the ATO (from 1 July 2018) information about transactions that involve engaging other entities to undertake those services for them.
At the time of writing, the Bill is before the House of Representatives.
One of the taskforce's recommendations for immediate action was to prohibit sales suppression technology and software. The Government announced its acceptance of this move in the 2017–2018 Federal Budget''.
Transaction data recorded by point-of-sale (POS) systems is a key component of sales and accounting systems for modern business. This data provides a clear record of transactions against which accounts and tax returns can be audited. The importance of POS systems data for tax auditing has led to some people developing and using tools – known as 'electronic sales suppression tools –' that facilitate tax evasion by suppressing or falsifying POS records of transactions.
Currently, Australia's tax law (namely the Taxation Administration Act 1953 [TAA 1953]) contains a variety of offences and penalties related to tax evasion and incorrect recordkeeping. These include penalties for providing false or misleading information to the ATO and for incorrectly keeping records with the intent of misleading the ATO.
Although these offences may apply to businesses that use electronic sales suppression software to incorrectly keep their records, the Government believes the TAA 1953 penalties aren't high enough to reflect the seriousness of using tools to intentionally misrepresent a business's tax position.
The Criminal Code in Sch 1 to the Criminal Code Act 1995 (CCA 1995) also contains offences related to forgery and providing false documents. Manufacturing electronic sales suppression tools may come under the offence for possessing, making or adapting a device for making forgeries, which can be punishable by imprisonment for up to 10 years. However, for the CCA 1995 provisions to apply, the device must be possessed, made or adapted specifically with the intention to commit forgery. The provisions also only apply to Commonwealth documents; this means, broadly, a document purporting to be made by a Commonwealth entity or official.
These requirements can be difficult to satisfy in the case of electronic sales suppression tools. Electronic POS records generally aren't Commonwealth documents. And even where an electronic sales suppression tool that was developed overseas is used to falsify records kept for Australian tax purposes, it's likely to be difficult to demonstrate that the tool was made or supplied with the intention of defrauding the Commonwealth specifically.
Another of the taskforce's recommendations for immediate action was to extend the taxable payments reporting system (TPRS) to apply to contractors in the courier and cleaning industries. The Government also announced its acceptance of this move in the 2017–2018 Federal Budget.
The TPRS is a transparency measure that currently applies to the building and construction industry. It requires businesses in that industry to report to the ATO all payments that they make to contractors for building and construction services. The TPRS appears to have improved tax compliance in this area, and has the potential to do the same for the courier and cleaning industries, which are similarly high-risk sectors where tax evasion is concerned.