As 2015 came to a close, we saw the Australian Taxation Office crack down on tax evasion. This is clearly seen in below of ‘Serious tax crime prosecutions’ posted by the ATO, where we saw a significant increase in court fines between 2013/14 to 2014/15.
2014-2015 – 37 Cases, 33 Convictions, 30 Custodial sentences, 9.94 ($m) Reparation orders and $4,600 in Court fines.
2013-2014 – 45 Cases, 34 Convictions, 26 Custodial sentences, 3.36 ($m) Reparation orders and $3,800 in Court fines.
What is tax evasion?
Tax evasion is exactly what it sounds like – evading or avoiding paying tax. Put more precisely – tax evasion is using illegal means to avoid paying taxes.
The ATO mention that tax crime occurs when people abuse the tax system through intentional and dishonest behaviour with the aim of obtaining a financial benefit. It can result in criminal sanctions, such as fines or imprisonment.
Tax evasion/crimes include deliberate offences, such as failing to report cash wages or even the use of secret offshore arrangements to evade tax. Those who commit serious tax crime are prosecuted by the Commonwealth Director of Public Prosecutions.
Recent case of tax evasion:
Recently, an investigation into payment of private school fees revealed that school fees were paid from secret bank accounts. This is problematic as these school fees may have been paid from a secret offshore bank account which is tax evasion.
The ATO found that this was the case for 100 children. Parents of these children are being contacted and asked to provide documents and attend interviews to answer questions. Deputy commissioner Michael Cranston mentioned that “there is nothing wrong with having an offshore account, but you need to pay tax on the interest or earnings”. This is an important thing to consider when looking at what constitutes as tax evasion.
In this particular case, amnesty or official pardon was given to taxpayers who voluntarily disclosed their offshore assets. This follows the pattern of Project DO IT (Disclose Offshore Income Today) – an initiative implemented in 2014 by the ATO to let taxpayers voluntarily disclose offshore income and assets.
Project DO IT includes possibly the most lenient terms ever implemented by the ATO for making a voluntary tax disclosure.
These terms are:
- Tax was only assessed for the past four assessment years, regardless of the number of years of non-disclosure
- Penalties are 10%, or nil if additional income in a year is $20,000 or less
- The ATO did not refer taxpayers for investigation for criminal prosecutions
- Assurance and certainty could be given on the tax effects of winding up offshore structures and bringing offshore assets back to Australia.
- Only certain financial information needed to be provided
- There was an efficient disclosure process with no obligation to meet the ATO
The ATO is now using information gained from Project DO IT to identify full client lists of Australian advisers in order to recognise those who did not come forward under Project DO IT. As a result, parents who have committed tax crime and have not come forward have an increasingly high chance of being found and prosecuted for committing tax evasion.
The ATO has predominantly improved their investigation services through connections and information gained from its previous scheme Project DO IT. Consequently, penalties for tax evasion become harsher for taxpayers who have not cleaned up their tax arrangements under Project DO IT.
For any queries of questions about taxation, please feel free to get in touch with us here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
