15 November 2019

How would your restaurant or cafe stand up to a tax audit?

Restaurateurs, how would your business fare in a tax audit? Cafes and restaurants operating on a cash only basis are the focus of an Australian Tax Office’s (ATO) clampdown on the illegal cash economy. With the ATO estimating that almost half (45%) of businesses in the restaurant, cafe, takeaway and catering industry are cash only, the hospitality sector is to be subject to increased scrutiny. 

What this means for business operators is that you can expect a possible knock on the door by a tax officer. ATO Assistant Commissioner Tom Wheeler says the move is intended to ensure fairness for all businesses and the wider community.

“We're working to protect honest businesses from unfair competition by taking action against those who do the wrong thing,” he says. 

During recent ATO visits around the country tax officers found businesses that

  • didn’t have business bank accounts, with no separation of business and personal income
  • didn’t record all sales or keep proper books                       
  • had friends, family and other employees working ‘off the books'.



The importance of keeping records

“Operating in cash is a valid option for restaurant and catering businesses, as long as it is correctly declared as taxable income,” says Gallagher hospitality insurance specialist Leanne Arscott. Gallagher is the endorsed broker of Restaurant & Catering Australia.

But if you don't pay proper attention to recording the financial details of running your  business you could be the subject of a tax audit.

“Evidence of under-reporting of income or the mis-allocation of allowable deductions – whether accidental or not – can result in a full tax audit," she warns. "This can be a costly exercise, with the average cost of preparing a response to an audit estimated to be in the region of $25,000.”

Coping with an audit

Arscott says that management liability insurance can safeguard restaurant and catering business owners against the cost of a tax audit.

“Management liability insurance is cost-effective option for small business owners,” she said. “Tax audit cover can be included in the policy, and that can be an excellent safety net.

“Other covers in the management liability package can also include employment practices liability and workplace health and safety fines and penalties."

This wide spread of protection makes management liability cover a practical choice for many small businesses.

Gallagher management liability insurance for small business owners includes up to $100,000 cover for tax audit costs, including accountant and tax agent fees.

Connect with an expert


Further reading

Food outlet case study: business interruption insurance an essential ingredient

Basics that hospitality employers need to know

To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.