Taxman warns on dodgy schemes

The Australian Taxation Office has released alerts warning taxpayers involved in dodgy tax schemes to make themselves known to the tax office or risk investigation and harsh penalties.

The Australian Taxation Office has released alerts warning taxpayers involved in dodgy tax schemes to make themselves known to the tax office or risk investigation and harsh penalties.

Tax Commissioner Michael D’Ascenzo says any person who organises or has knowledge of tax abuse schemes should be warned they risk being watched closely.

“These schemes are variations on ones that have concerned us before, and we are considering whether the promoter penalty laws should be applied to people promoting them,” D’Ascenzo says.

The alerts target employee savings plans, salary deferral arrangements, profit washing schemes and liquidation schemes.

Employee savings plans attempt to reduce the amount of payable income tax by converting wages or salary into capital gain.

Salary deferral arrangements are schemes where an employee defers income and instead receives a lump payment categorised as a loan, claimed as non-taxable. Later, the employee is given salary offset against the loan.

Profit washing attempts to reduce tax liability by using an unrelated entity for tax losses. Taxpayers involved in theses schemes restructure their companies and divert their business’s income through other trusts and into a loss company, which means the income remains solely under the control of the taxpayer.

Liquidation schemes are used by taxpayers who want to avoid tax and penalties by liquidating companies and trusts that would otherwise invoke some tax liability. The tax office warns criminal charges are applicable to those involved in liquidation schemes.

“Abusive tax schemes tend to have a flow-on effect, meaning people caught up can have a large tax debt and substantial penalties when they are caught,” D’Ascenzo says. “If people contact us before we begin an audit, they will be entitled to a reduction in any penalties that may apply.”

D’Ascenzo also says anyone who is uncertain about their tax obligations should apply for a tax office ruling or seek professional advice.

Read more on tax schemes and wash sale arrangements