ATO Launches Probe Into Self Certification Loans

by Mary Swire, Tax-News.com, Hong Kong

25 June 2004

Australian Tax Commissioner Michael Carmody has announced that the Tax Office is preparing a major investigation into taxpayers making use of self certified, or ‘low doc’ loans, after audits revealed that almost three-quarters were understating income.

According to Carmody, in some cases the annual loan repayments themselves exceed reported taxable incomes. In other cases, people with substantial loans had failed to lodge tax returns.

"These are potentially serious breaches of the law. People deliberately understating their income face penalties of up to 75 per cent plus interest," Mr Carmody warned on Thursday.

Low doc loans do not require paperwork to prove income, and the lending institution usually charges a higher rate of interest on these loans. Recently, the Tax Office has been matching details from a selected range of low doc loans with the borrowers' tax files.

"Not all raise concerns,” revealed Carmody. “However, in around 70% of the 176 cases examined, there is reason for us to believe there may have been an understatement of income or a failure to lodge income tax returns."

The ATO is hoping to convince people to voluntarily disclose understatement of income with “substantial” reductions in penalties.

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