Will this business attract more scrutiny or tax audits from the ATO in future?

A friend has placed a deposit on a hairdressing salon at Hornsby.  She has since found out that a previous employee had informed the ATO for paying her cash wages and they were subsequently fined a substantial amount of money.  

How will this affect the business going forward and will it mean more "attention" or audits from the ATO?

Top voted answer
Todd Dewey

Todd Dewey, Consultant at Oakton

I am not an tax expert however I don't believe that the history of the previous owner would have any impact on your friend. Your friend will be lodging returns under her company / sole trader ACN or ABN. My wife has a hairdressing salon and she was audited by the ATO last year. My understanding is that they target specific industries on a cyclical basis, which may mean you will not be targeted for a while. The ATO run a range of fairly sophisticated tools to assess cash v credit sales, wages per employee, wages per sales volume etc...., however every salon is unique so it is difficult to generalise. In the end if you are upfront with what you declare, then as we were, you don't have an issue - my tip is to ensure your friend retains adequate comprehensive records in addition to bank statements, till receipts or appointment books were helpful for us.

Steve Wilson

Steve Wilson at

It will depend on how your friend is planning on purchasing the hairdressing salon. If the vendor (seller) is running the salon under a company structure and is planning on selling the company and thus your friend is buying the shares in the company, then any liability will become your friend's liability moving forward. Part of the purchase process should involve a legal due diligence as well as an accountig due diligence. This would involve a review of any current and potential liabilities such as outstanding ATO audits and liabilites which may include PAYGW on the cash wages. If I was advising your friend, I would advise them to buy "the business" and not the company, this way the liabilities remain with the company and current shareholder / director of the hairdressing salon and not your friend. The only liabilities that come over relate to employees that stay with the business such as long service leave and other entitlements. The legal due diligence along with the accounting due diligence usually arrange for a reduction on purchase price to cater for the assumed liabilities.