ATO sounds warning on fresh tax scams

This article was current at the time of publication.

With the cost of living an issue for many Australians there’s concern vulnerable individuals are being tempted by tax avoidance opportunities.

Clients and tax advisers are being warned about tax schemes that promise easy wins, but which are likely to lead to financial loss, legal action, and hefty penalties.

These unlawful schemes claim to reduce taxable income, increase deductions and offsets, inflate refunds, and, in some cases “safely” access super benefits early.

Appearing as online promotions on websites and social media, they also falsely classify revenue as capital, exploit concessional tax rates and camouflage funding sources or true relationships between parties.

Honest folk falling for tax scams

Sold by promoters as significantly reducing or avoiding paying tax altogether, the latest wave of the dodgy schemes has triggered a warning from the Australian Taxation Office (ATO).

Deputy Commissioner Hoa Wood (Private Wealth, Behaviours of Concern) says: “Honest people who don’t know what they’re getting into” are being snared by the misleading promotions.

“Our advice [to taxpayers] is look out for any scheme that promises a big tax saving, including reducing your taxable income, increasing deductions or offsets to a point that seems too good to be true.

“Watch out, also, for schemes that offer zero-risk guarantees, promise huge returns on your investment and any scheme that promises you can avoid your tax obligations entirely.”

Hefty fines and jail … plus the tax you didn’t pay

External agencies and taskforces, including the Australian Securities & Investment Commission (ASIC), the Department of Industry, Science and Resources (DISR) and the Serious Financial Crime Taskforce, are working with the ATO to prosecute perpetrators. 

“The ATO takes action against those who promote unlawful schemes, including through the promoter penalty laws,” says Wood.

“In some instances, cases will be pursued as criminal matters. The worst cases may result in imprisonment.”

Those who participate in unlawful tax schemes will not only have to pay back the tax, but potentially face significant penalties in the range of 10 to 90 per cent of the tax avoided, plus interest.

Accountants in the box seat

Tax advisers are well-positioned to recognise potential unlawful tax and super schemes and to caution clients against ill-advised short cuts.

Wood says accountants have an important part to play in compliance and educating clients.

“Advise your clients to be suspicious of offers that seem too good to be true. And if they're bringing a suspicious tax scheme to you, tell them to reject it and report it to us. 

“If they've already entered into an unlawful tax scheme, contact us immediately.

“Approaching us may make them eligible for a reduction in any penalties.”

Some schemes that have been red flagged 

1. Early-stage investor tax offset where individuals are offered an investment opportunity in an early stage innovation company (ESIC), when in actual fact the start-ups don’t qualify as an ESIC.
2. Research and development tax offsets where clients are encouraged to lodge inflated, inaccurate or unsubstantiated claims.
3. Research and development tax offsets for expenditure and activities conducted in Australia or overseas for foreign related entities. Some companies are mischaracterising the relationships to access or increase their entitlement.
4. Dividend stripping where holding companies try to access the profits of a private company tax free via a franked dividend or set up loans from the holding company to the business owner illegally.
5. Inappropriate use of self-managed super funds (SMSFs), e.g. illegal early access as well as encouraging people to channel money into the fund to avoid paying tax.
6. Exploiting not for profits (NFPs) by encouraging participants to set up sham NFPs that pay no tax.