Taxpayers Warned About Two Tax Evasion Schemes By ATO

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

26 May 2008

The Australian Taxation Office (ATO) on Friday issued two taxpayer alerts warning people about its latest concerns with tax evasion schemes.

One alert refers to prepaid service fees between associates and the other is about private company loan agreements.

Tax Commissioner Michael D’Ascenzo stated that people thinking of participating in these types of schemes should be warned that they are going to be under close examination by the Tax Office:

“As I have said before, anyone involved in a potential tax evasion scheme is encouraged to come forward and contact us as soon as possible," Mr D'Ascenzo commented, going on to suggest that:

“If people contact us before we begin an audit, they may be entitled to a reduction in penalties."

“These particular types of tax evasion schemes tend to have a snowball effect each year, which means people can end up with a very large tax debt and substantial penalties when they do get caught."

“Anyone who is uncertain about their deduction entitlements should seek independent tax advice or request a private ruling from us."

“People marketing these schemes should also be aware that they could face penalties under the promoter penalty laws,” Mr D’Ascenzo concluded.

The types of schemes in question are as follows:

Certain arrangements involving private company loan agreements

In this type of arrangement a private company advances money to a shareholder. The shareholder then purports to repay the loan via a round robin of endorsed cheques, which may never be cashed.

The aim of the arrangement is to distribute private company profits to shareholders tax-free, in breach of the rules to prevent disguised distributions to shareholders or their associates.

Prepaid service arrangements between associates designed to postpone a tax liability

Under this arrangement, deductions are claimed for an alleged prepayment close to the end of one financial year for services supposedly to be provided in the following financial year.

Generally, the law allows a deduction for a prepaid expense over the period in which the service is provided but only when money is actually paid and services are really provided.

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