There are multiple ways to minimise tax, some legal and others illegal. The complexity of tax fraud can range from someone overclaiming on their tax-deductible expenses, to a sophisticated offshore arrangement with money sifted through multiple accounts and legal entities.
This article will focus on prosecutions for income tax, GST, and regulatory breaches in Queensland.
Tax related offences are created in the Tax Administration Act 1953 (Cth) and the Criminal Code Act 1995 (Cth). These offences are under Commonwealth law, rather than State law.
The prosecution of tax fraud offences is split between the Australian Tax Office (ATO) and Commonwealth Director of Public Prosecutions (CDPP). The ATO will tend to prosecute straight-forward regulatory offences under tax legislation, whereas if a matter is defended or more complex, it will be referred to the CDPP.
Some examples of tax fraud include:
- Failing to report cash income,
- Falsifying claims for GST credits,
- Underreporting of income in personal tax returns,
- Over claiming of tax deductions in personal tax returns.
Some examples of regulatory offences include:
- Failing to lodge a tax return by the deadline,
- Failing to provide substantiating documentation for GST claims or tax deduction claims,
- Failing to notify the ATO of a material change in circumstances (change of job for example),
- Failing to pay a tax debt by the due date.
How are these offences investigated?
In the ATO’s words, they investigate these offense by:
Analytical models that use behavioural and statistical algorithms to analyse information on tax returns, business activity statements and other tax forms,
Strong data and intelligence sharing capabilities with our partners in Australia and overseas.
The most common way is through data matching and analysis. The ATO’s systems collate information which will flag a file that looks out of place. For example, a person may claim a tax refund which is noticeably higher than others who are in the same kind of employment. A small business may claim GST tax credits which seems excessive in comparison to similar classes of business, such as family-owned restaurants.
On occasion, tax agents may file false tax returns in their clients’ names and then direct refunds into their own bank accounts. If not discovered by data analysis, the offending may be discovered by clients of the tax agent reporting them for suspicious activity.
How to respond if investigated by ATO
Often, a person can avoid criminal charges if he or she responds to ATO contact. The ATO will often contact the person or business concerned before commencing a prosecution. For example, a person may have failed to file tax returns for multiple years and failed to file business activity statements. This will not necessarily be a deliberate attempt at tax fraud but may be an example of someone disorganised and unable to get on top of their tax paperwork. A different example is a person who overclaims deductible expenses. In that situation, the ATO will often give the person an opportunity to withdraw his or her claims. In these examples, if the person cooperates with the ATO to address the identified issue, that is usually where it will end.
If, however, there is evidence to substantiate actual or attempted fraud, this will often result in a prosecution regardless of cooperation.
Typical Offences
For more serious matters, they will be charged under the following usual offences:
- Dishonestly obtaining Commonwealth property,
- Obtain financial advantage by deception,
- Dishonestly cause a loss to the Commonwealth.
These offences will be charged when a person can be proved to have been dishonest with the tax department and has gained (or tried to gain) a financial benefit by means of tax fraud. These offences are serious and can lead to prison time. In general, the complexity of the tax fraud, the sum defrauded, and the extent of the dishonesty, will all be critical factors for a court to consider when deciding on a penalty.
Less serious infractions may be:
- A person who refuses or fails:
o to furnish an approved form or any information to the Commissioner or another person; or
o to give information to the Commissioner in the manner in which it is required under a taxation law to be given; or
o to lodge an instrument with the Commissioner or another person for assessment; or
o to notify the Commissioner or another person of a matter or thing; or
o to produce a book, paper, record or other document to the Commissioner or another person; or
o to attend before the Commissioner or another person; or
o to apply for registration or cancellation of registration under the A New Tax System (Goods and Services Tax) Act 1999.
For these more minor infractions, the maximum prescribed penalty is a large fine. They are mostly to do with failures in providing proper paperwork. It is not necessarily (but can be) connected with dishonesty or fraud. These offences can still lead to criminal convictions.
Possible Defences
Each case, of course, will depend on its own circumstances.
The more serious offences have a ‘mental element’ of dishonesty in them, which mean that the prosecuting authority must prove that the person’s intent was dishonest.
Under the law, dishonest is defined as:
‘(a) dishonest according to the standards of ordinary people; and
(b) known by the defendant to be dishonest according to the standards of ordinary people.’
In these cases, it may be possible to negotiate a settlement with the ATO or CDPP on the grounds that the person, while he obtained an advantage, did not do so dishonestly. This would be possible in certain circumstances, such as a person who overclaimed income tax deductions miscalculated what he was entitled to or placed a decimal point or comma wrongly in his calculations, therefore inflating his tax refund. Such a defence is more likely to succeed in circumstances where the defendant has only gained a small benefit.
Where a defendant has gained a benefit by falsifying documents or he has gained a large benefit over a period of years, he is unlikely to be able to argue his conduct was not dishonest.
For the less serious offences, they are ‘absolute liability’, which means all the ATO must do is prove the person failed to provide a document or failed to comply with a tax regulation, to prove the offence. The person’s intentions do not come into it.
Conclusion
As can be seen, there is a bit of complexity around tax fraud offences. If you have been charged with such an offence, or if the ATO has not charged you but is accusing you of failing to meet your tax obligations, we highly recommend you seek expert legal advice. Clarity Law has over three decades of combined legal experience. We can assist with your matter at competitive prices.
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