Some time ago I informed Crikey readers about the Keystone Cops routine of tax office auditors trying to outsmart brothel operators in their clandestine attempts in gathering intelligence against the industry. Unfortunately their form hasn’t improved much with their latest clumsy efforts to bring cases against brothel owners.

The ATO are now seizing brothels’ CCTV which shows punters entering and leaving the premises. The auditor checks the number of patrons against the jobs recorded in the cash receipts book for the day and discovers there were, say, five jobs short for that day. The only problem is that the brothels only keep the tapes for a fortnight then get rid of them.

That’s no problem for the smarties in the tax office because they use the fortnight’s tapes as a base to prove brothels are not accounting for their cash, so five unrecorded jobs a day times 350 days amount to sizeable bills.

One of the interesting issues to come out of this is the number of dishonest receptionists/managers who have in fact pocketed the cash and not recorded the job, unknown to the brothel owner. There have been three receptionists sacked in Sydney this year for ripping off the owners. Brothel barons would like to personally thank the tax office for bringing these matters to their attention. Whether or not the ATO assessments stand up in court is another matter.

Another tax office initiative is conducting a trading hours analysis to see whether all cash has been declared. They establish how many hours a week the brothel is open and times that by the number of rooms in the establishment to garner a weekly income figure. Comparisons are then made with income declared in the tax return.

It has thrown up some interesting cases. For example they found a six room premises was returning an income equivalent to only three rooms rented out for half the day. I can hear Crikey readers saying, “Gotcha!” However, most of these cases have to have factored in the following points to get a clearer picture of what is really happening. For example there are peaks and troughs during the day and some hours during the night are busier than in the morning and so on. There is no way rooms are fully utilised 100% during the day. Unfortunately, it just isn’t like that.

There is also the issue of illegal brothels operating near legal establishments. These places take away business from legal owners. You will recall I provided a list of 775 illegal joints to the federal minister who passed it on to the tax commissioner for action. I would suggest to Mr D’Ascenzo that this analysis conducted by his officers needs to be handled carefully and a commonsense approach taken.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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