Tax Crime – What are the Criminal Consequences?

How do you lose $8.7 billion? 

It’s got us scratching our heads. But according to the ABC, that’s how much the Australian Government lost to tax evasion and fraud in 2014–2015. 

Now in the 2019–2020 financial year, you can bet that the ATO will be paying particularly close attention to coronavirus tax evasion and fraud. Recently, the ATO expressed that any misuse of the JobKeeper scheme, early release of superannuation or boosting cashflow for employees is high on its radar. 

The ATO also says its on alert for those who cheat or evade the tax or super system. But who exactly will that target this time round? 

It’s been a volatile year financially. Coronavirus has forced many Australians to rely on Government handouts. Individuals, corporations, small businesses—no-one has been exempt from the economic backlash of COVID-19. Some of the hardest hit have been small businesses, who’ve been flat out ensuring they live to see the next week. And let’s not forget the robo debt scandal earlier this year. While the Government handled this quietly, it’s left us questioning the integrity of these schemes.

This context hardly inspires confidence for people filing their tax returns this year. But this doesn’t mean we have to be sitting ducks waiting to land in the ATO’s clutches. Let’s break down the key things to be aware of when it comes to tax crime.

Firstly, what is tax crime? 

Tax crime refers to any activity that abuses the tax and super systems for financial benefit. It includes, though is not limited to, hiding cash wages, avoiding tax, using offshore secrecy arrangements and falsely claiming refunds and benefits. 

In relation to the COVID-19 schemes, it means using a scheme when you don’t meet its eligibility requirements, falsifying records to meet these requirements, or even making incorrect claims. 

In short—tax crime can catch a wide range of behaviours, both coronavirus-related and not coronavirus-related.

What are the criminal consequences? 

The penalties for tax crime are far-ranging. Some people might just cop a fine, but prosecution and imprisonment are on the table for serious cases. Under the Criminal Code Act 1995 (Cth), the most likely provisions to apply for tax crime are the following. 

Section 134.1(1): Obtaining property by deception

Here, ‘property’ means funds owed in tax or other financial assets. This means that this provision could apply if you avoid paying taxes through falsifying information on your tax return. The penalty? Up to 10 years imprisonment.

Section 134.2(1): Obtaining financial advantage by deception

If you acted in a deliberately deceptive manner to receive a financial advantage from a Commonwealth entity, this provision may apply. Under this section, simply claiming a benefit for yourself or another person that you are not entitled to could result in 10 years imprisonment. 

Section 135.2(1): Obtaining financial advantage 

This provision may apply if you knew or believe that you were not eligible to receive a financial advantage, and you deliberately engaged in conduct that resulted in obtaining financial advantage for yourself from a Commonwealth entity. Unlike the other offences, this can result in imprisonment of only 12 months instead of 10 years. 

Section 135.4 (3): Conspiracy to defraud

If the ATO suspects you conspired with another person with the intent to dishonestly cause loss to a Commonwealth entity, you could be facing 10 years imprisonment. The person involved in the conspiracy shares joint liability.

What if I just made a simple mistake?

These provisions generally require an element of deception to result in a charge. The ATO shouldn’t come after you for making a mistake such as minor mathematical errors, transposition errors or obvious mistakes in filling out your tax return.

But it’s no time to be complacent. While minor mathematical errors shouldn’t land you in hot water, underreporting your income can. If you’re concerned you’ve made a mistake made on your tax return, contact your tax advisor as soon as possible. If things escalate and you face criminal prosecution for tax crime, contact Green & Associates today on (02) 8080 7585 or [email protected]

In the meantime, some things you can do to avoid unwanted ATO scrutiny include: 

  • not claiming unless you’re out of pocket (if you’ve already been reimbursed by your work, you can’t claim this reimbursement again);
  • keeping a record of work expenses and ATO communication; 
  • claiming work deductions only when they directly relate to earning your income; and 
  • reading the ATO’s income tax guide if you’re still uncertain. 

What if my tax agent made a mistake? 

If your tax agent has incorrectly filled out your tax return, you may be able to make a claim for negligence against them.

If this is your concern, contact Green & Associates today on (02) 8080 7585 or [email protected]

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