ATO Warns Against Using New Debt Schemes To Solve Old Debts

by Mary Swire, for LawAndTax-News.com, Hong Kong

11 April 2008

The Australian Taxation Office (ATO) on Thursday issued a taxpayer alert warning about arrangements whereby taxpayers previously involved with tax avoidance or evasion schemes are approached to enter into a new scheme, in order to obtain a tax deduction and to settle debts arising from the financing of the previous schemes.

It is understood the promoter offers to settle the financing debt by accepting partial repayment or returning a significant portion of the full repayment to the taxpayer through a ‘round robin’ arrangement.

The promoter offers to provide the taxpayer with documents which allegedly support the claim for a tax deduction for the full amount of the financing debt.

Tax Commissioner Michael D’Ascenzo urged taxpayers who may be contemplating entering into such new arrangements to be cautious.

He explained that the Tax Office is concerned that these types of arrangements raise serious issues, both for taxpayers who may enter into the arrangements, as well as those who may be involved with the promotion of such arrangements.

“We will also be considering whether the outstanding debt or the amounts actually repaid by the taxpayer are deductible, and whether the general anti-avoidance rules may apply. In addition, we will be considering the application of the promoter penalty laws to those involved with promotion activities," Mr D'Ascenzo explained, going on to add that:

“There may be serious implications for taxpayers who enter into these arrangements."

"These could include significant penalties of 50% or even 75% of the tax underpaid and possible sanctions under the criminal law,” he concluded.

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