If you're found to be not reporting, or under-reporting revenue, the consequences can be severe.
If you're found to be not reporting, or under-reporting revenue, the consequences can be severe. Photo: Bloomberg.
If you run a small business and you're not recording the revenue you should, the Australian Taxation Office has you in its sights. The tax office has just released its tax targets for 2010/2011 and the cash economy is high on its list.
If you're not reporting revenue, or under-reporting revenue, and the ATO finds out, the consequences can be severe. Expect possible jail time and a criminal record, and the tax office forever on your back.
Tax Commissioner Michael D'Ascenzo said refund fraud, the cash economy, employer obligations, wealthy Australians and tax secrecy havens were all under the spotlight.
"We will crack down on businesses using cash transactions to hide income and evade tax, using benchmarks for more than 100 industries and reviewing or auditing the activities of more than 26,000 micro businesses," he said.
"We will also focus heavily on employers, ensuring they lodge their business activity statements on time, meet their pay as you go withholding obligations and make correct super payments to employees."
Mr D'Ascenzo said the ATO would also undertake 800 compliance reviews in industries showing a pattern of non-compliance, including road freight transport, automotive repair and electrical services.
Tax experts say there are also a host of business consequences if you don't record revenue properly.
Diane Terzian, partner with accounting practice J I Moore & Partners, says not recording revenue properly can considerably reduce the value of a business when it comes time to sell.
"The value of your business is based on a multiple of your earnings before interest and tax. So if you're not showing the right amount of income the value of the business will be lower than it should be."
Simon James, a partner with accounting firm HLB Mann Judd says improper revenue recognition is rife among small businesses, and is something that comes back to haunt the business owner when it comes time to sell up.

"I've been involved in around 200 transactions involving privately held businesses and almost all of them had to have normalisation adjustments to their reported numbers before the business could be sold."
Mr James says the consequences of this are that potential buyers of the business can lose trust in the vendor. He says when this happens transactions can often fall over.
If a potential acquirer loses trust he or she might also want to only buy the business's assets, rather than the equity in the business, to avoid being exposed to any future tax liabilities.
"This means capital gains tax exemptions might not be available to the person selling the business," Mr James says.
Under ATO rules, small business owners who sell a business because they are retiring don't pay capital gains tax on businesses valued up to $500,000.
According to Ms Terzian another consequence of not recording revenue is gaining access to the finance you need to develop the business.
"If you're not showing revenue you can't generate the  finance you require because you'll be showing the bank figures that under-represent income," she says.
Ms Terzian says if you're not recording revenue correctly you also compromise your insurance coverage. For example, when you take out income protection insurance and business expense cover you will only be able to cover the amount recorded in your financial statements, rather than the amount the business is really earning.
Adrian Raftery, principal of ARW Chartered Accountants, says it's also much easier now for the ATO to find out if you're not recording revenue properly. He says "data matching...makes it tougher to hide."
"You might also have sleepless nights worrying about it. It might not be that much tax that you are trying to hide at the end of the day, as marginal tax rates are a lot lower these days. Not banking money also means you can lose 6 per cent in interest and the risk of being robbed increases as well.
"I strongly recommend business people fully disclose their income. If you don't act in accordance with the tax rules you can definitely expect a knock on the door from the taxman.
"Tax penalties for fraudulent activity can be as high as 200 per cent of undisclosed income, plus interest penalties, which are currently 11.7 per cent.
According to Mr Raftery "while the taxman normally only looks back at four years of tax returns, the ATO can go back indefinitely if someone is shown to be fraudulent in those four years."