Activities involving electronic sales suppression tools (ESST) and that relate to people or businesses with Australian tax obligations are now legally banned, effective from 4 October 2018. This is part of the measures under the recently passed Treasury Laws Amendment (Black Economy Taskforce Measures No 1) Bill 2018. People or entities may be liable for criminal and administrative penalties if they produce, supply, possess or use an ESST or knowingly assist others to do so.
The ATO has noted that ESSTs can come in different forms and are constantly evolving. For example, an ESST can be:
- an external device connected to a point of sale (POS) system;
- additional software installed into otherwise-compliant software; or
- a feature or modification, like a script or code, that is a part of a POS system or software.
An ESST may allow income to be misrepresented and under-reported by:
- deleting transactions from electronic record-keeping systems;
- changing transactions to reduce the amount of a sale;
- misrepresenting a sales record, for example by allowing GST taxable sales to be re-categorised as GST non-taxable sales; or
- falsifying POS records.
It is now an offence to produce or supply an ESST, possess an ESST or incorrectly keep records using an ESST. A court may impose a criminal penalty up to a maximum of 5,000 penalty units (currently $1,050,000). Otherwise, the ATO may impose an administrative penalty of 60 penalty units (currently $12,600).
The ATO has found cases of taxpayers using such software to deliberately not report all their cash income, falsely report regular losses and/or manipulate their employee obligations.
However, businesses may have inadvertently purchased software with a suppression function. The ATO has advised there will be a transitional grace period for these businesses – if the software was purchased before 9 May 2017 (the date the measures were announced), the business has until 3 April 2019 to advise the ATO and apply for the transitional arrangements.
The ATO has reiterated the need for taxpayers to keep detailed records of every transaction.