In 2022 Tax Tips

False Tax Claims

Every year, the ATO investigates thousands of suspected fraudulent activity. Therefore, understand the risks involved in making a false tax claim. This blog post will discuss some common types of false tax claims and what can happen if caught. We’ll also offer some tips for avoiding trouble with the ATO. So read on to learn more!

Are you ever tempted to make a false tax claim? You’re not alone. Millions of people try to get away with cheating on their taxes every year. However, if you’re caught, you could face some serious penalties. In this blog post, we’ll take a closer look at the consequences of making a false tax claim and explain why it’s in your best interest to avoid them. We’ll also provide some tips for making sure your tax return is accurate and complete. 

When most people think about taxes, they think about the April deadline and how much they owe or are getting back. Unfortunately, however, there are a number of tax-related crimes that occur each year, costing the government billions of dollars. In this blog post, we’ll discuss some of the most common false tax claims and what you can do to avoid being caught up in them.

ATO Rolls Out Stricter Measures against False Tax Deduction Claims

Taxpayers need to exercise more caution when filing tax deduction claims now that the Australian Taxation Office (ATO) is cracking down on potential false claims this tax time.

The ATO has previously expressed its intent to implement more stringent measures as part of its crackdown on the $8 billion “tax gap,” which also prompted it to send hundreds of thousands of “please explain” letters to Aussies who have questionable tax deduction claims.

What Tax Deductions Are Flagged Down?

In addition to the changes it’s making in relation to tax deduction claims, the ATO is keeping a close eye on work-related expenses like car, clothing and laundry expenses.

More than 3.6 million taxpayers made car expense claims which amounted to more than $7.2 billion in 2018, while clothing and laundry claims totaled to approximately $1.5 billion in 2018. There was approximately six million people who claimed for these expenses, but it’s unlikely half of those taxpayers were required to wear job-specific clothing, according to Assistant Commissioner Karen Foat.

Tax Deductions Without Receipts

While taxpayers must be able to provide evidence (receipts) of the claims, not all items require receipts—$150 for laundry expenses and $300 for work-related expenses.

However, the ATO can enquire about how it was calculated or even speak with employers to confirm if the individual’s role warrants such expenses, like a uniform.

The ATO has expressed concern about the number of individuals claiming for conventional clothing they wear to work and clothing required by a specific dress code—both are different from, and don’t qualify as, uniforms, protective clothing, or occupation-specific clothes.

Those who can not provide evidence of their claims will not only be denied the deduction but may even be penalised for failing to exercise diligence with their tax returns.

Using a sophisticated data analytics system, the agency can identify unusual claims by comparing an individual’s claims against those with similar jobs. It can also flag taxpayers who claim for certain items when other people with the same job don’t usually make claims on such items.

Basic rules when claiming a deduction:

  • The taxpayer must have incurred the expense and has not been reimbursed by their employer or business.
  • Provide evidence the item is directly related to the individual’s job.

Making a False Tax Declaration

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Making a false tax declaration without having a reasonable excuse can result in both individuals and businesses being exposed to significant financial penalties from the Australian Taxation Office (ATO).

If the ATO has identified that you have made a false or misleading tax declaration, they will likely issue you with an infringement notice.

However, depending on the severity of the deception and the benefit that has been obtained, the ATO may refer your case to the Commonwealth Director of Public Prosecutions, where you may be charged with serious criminal offences that can result in terms of imprisonment.

When Will The ATO Investigate?

You may be liable to a financial penalty from the ATO if you make a false or misleading tax declaration that results in you declaring a shortfall amount.

The shortfall amount is the difference between your correct tax liability or credit entitlement and the liability or entitlement worked out using the information you provided.

Even if there is no shortfall amount, the ATO can still issue an infringement notice if you make a false or misleading tax declaration.

What Type Of Financial Penalty Will I Receive?

The ATO has identified three categories, depending on your level of deception, in which they can impose a monetary fine. The greater the deception, the greater the financial penalty that can be imposed.

The categories include:

  • Failing to take reasonable care – this means you failed to take reasonable steps that an ordinary, reasonable person would have taken in the same set of circumstances (20 penalty unit fine)
  • Reckless – this means that you were aware and that there was a real risk that the tax declaration you filed was misleading or false, and you showed indifference or disregarded that risk (40 penalty unit fine)
  • Intentional Disregard – this means you intentionally disregarded the law and were fully aware that the tax declaration you filed was misleading or false in order to obtain a benefit (60 penalty unit fine)

Can The Base Penalty Be Reduced Or Increased?

The base penalty can be reduced or increased, depending on whether there are any aggravating or mitigating circumstances in your particular case.

For example, if you have been contacted by the ATO who are investigating a shortfall amount in your tax declaration, and you attempt to obstruct or prevent them from conducting their investigation into the shortfall amount, then the base penalty can be increased. Additionally, if you were aware that you made a false or misleading tax declaration and failed to alert the ATO within a reasonable time, the base penalty may be increased.

The ATO also has the discretion to reduce the base penalty that it may otherwise impose. In deciding whether to reduce the penalty, the ATO will consider:

  • Whether you were cooperative with the ATO.
  • Whether you alerted the ATO to filing the false or misleading tax declaration.
  • There were circumstances beyond your control which prevented you from meeting your obligations.
  • The penalty that would be imposed would produce an unjust result.

What Is The Safe Harbour Provision?

You will not be exposed to an administrative, financial penalty from the ATO if the following applies:

  • Your registered agent made the statement
  • You gave your agent all the relevant tax information to enable the statement to be made correctly
  • The false or misleading statement was the result of your agent failing to take reasonable care
  • The statement was made on or after 1 March 2010.

Refund Fraud

Refund fraud is claiming a tax or superannuation refund by providing false information to us. It is more than a careless or accidental mistake as it is undertaken deliberately and deceitfully. This fraud can occur in a number of ways, from creating fictitious expenses to creating false documentation to support a claim. In addition, some individuals lodge fraudulent claims in their own name or for their business.

Refund fraud is also enabled by identity crime when personal identity information is stolen and used to impersonate legitimate taxpayers and lodge fraudulent refund claims in their names.

Highly organised syndicates use a range of methods to steal personal identity information in order to commit fraud. These activities have devastating impacts on legitimate individual taxpayers and the tax and super system.

Refund fraud includes:

  • providing fictitious payment summary or income statement details or fictitious expense claims or offsets on income tax returns and amendments
  • providing false information in statements such as fictitious expenses
  • lodging fraudulent returns using false or stolen identities
  • claiming goods and services tax (GST) through fraudulent business registrations or using false or stolen identities
  • accessing super funds by using falsified documents.

Refund fraud steals revenue that is used for the whole community and disadvantages. Australians who do the right thing. We take it very seriously, and we have a range of controls and systems in place to detect potential refund fraud, including:

  • analytical models that use behavioural and statistical algorithms to analyse information on income tax returns, business activity statements and other tax forms
  • sharing data and intelligence with our partners in Australia and overseas
  • receiving information about suspected fraud from the community and other government agencies.

Common Penalties & Legal Consequences For Tax Evasion In Australia

In a bid to make more money, some rogue businesses and individuals try clever ways to avoid paying the right tax. But this won’t go for long without the taxman noticing you have been filing incorrect tax returns.  

Tax evasion is a serious criminal offence in Australia. It’s a violation of the Criminal Code Act 1995 and subject to criminal investigation and prosecution. Penalties include confiscations of properties and even long jail terms. 

Tax Evasion Offences And Penalties 

There are so many types of taxes in Australia, with income taxes, property taxes and corporate taxes being the most popular. But, unfortunately, they are also the most evaded taxes, especially by those in businesses. Other evaded taxes included goods and services taxes, as well as taxes on inheritance.  

Here are the most common tax evasion offences and legal consequences: 

False Tax Returns 

This is the most common trick people use when filing for tax returns. They provide falsified information that enables them to reduce the amount of taxes payable to the Australia Tax Office (ATO). Under section 134.1(1) of the Criminal Code Act, 1995 is a crime punishable by law. 

The prosecutor must prove that you deliberately filed false tax information with the intention to defraud the state. You need a good legal team to prove it was an error. If found guilty of obtaining property by deception, also called false tax returns, you can be fined or sentenced to a maximum of 10 years in prison. 

Claiming False Benefits 

Under section 134.2(1) of the Act is a criminal offence to obtain financial advantage by deception. For example, some individuals may try to put false information to obtain tax benefits, such as falsely increasing deductible items on their tax returns. A good example is lodging a false claim on money donated to charity. 

Though the prosecution will need to prove beyond reasonable doubt that you hatched a plan to gain a financial advantage through deception, the penalties are severe when found guilty. You can be asked to pay hefty fines or serve a maximum of 10 years in prison. 

Obtaining Financial Advantage 

Under section 135.2(1) of the Act, it is a criminal offence for anyone to obtain financial advantage from ATO. You have committed a tax offence if you knew that you were not eligible for the tax benefit and claimed it. If you deliberately engage in an act to obtain a financial advantage from ATO, you have committed a crime. 

If the prosecutor proves these two elements beyond reasonable doubt and the court finds you guilty, you can be fined or put in jail for a maximum of 12 months or both. 

Conspiracy to Defraud 

It is a criminal offence to conspire to defraud the state. Under Section 135.4(3) of the Act, it is a crime if it is proven that you and another person(s) conspired to cause loss to the Australia Tax Office (ATO).  

This tax law is made to cater for the situation where more than one entity or person conspires a tax fraud. If found guilty, both or all involved persons share liability. The maximum sentence for this tax offence is 10 years imprisonment. 

Tax Fraud – Avoid Going to Jail for Tax Evasion in Australia

accountant calculating income and examining report

Tax fraud (also commonly known as tax evasion) is the illegal abuse of the taxation system for financial benefit. 

In Australia, tax fraud is criminalised by both the Federal Government and State Governments. Tax fraud is a serious crime and carries a maximum penalty of up to 10 years’ imprisonment.

Many different Federal and State offences fall under the umbrella of tax fraud. Most of these offences require the prosecution to prove that the fraudulent act was deliberate rather than careless or accidental. If the authorities believe that a person committed a tax crime due to carelessness or accident, they may only impose a fine for a lesser offence.

Below, our tax fraud lawyers discuss criminal tax offences in great detail, including:

  • Federal vs State Taxes in Australia
  • Federal Tax Fraud Offences and Penalties
  • Victorian Tax Fraud Offences and Penalties (including Tax Evasion)
  • Legal Defences to Tax Fraud
  • What To Do If You’ve Been Charged With Tax Fraud

Taxes in Australia: Federal vs State Taxes

Australian citizens are taxed by two different levels of government – the Federal Government (also known as the Commonwealth) and the State Government. 

The Federal Government can tax all Australian citizens and companies. Some of the most common federal taxes include:

  • Income Tax
  • Capital Gains Tax
  • Goods and Services Tax
  • Fringe Benefits Tax
  • Medicare Levy
  • Superannuation Tax

Comparatively, state governments only have the power to enforce certain taxes in their state or territory. Some common state taxes include:

The Federal and the State jurisdictions have their own legislation that criminalises tax fraud offences. 

Australia – Federal Tax Crimes and Penalties

Suppose you commit serious tax fraud against the Australian Federal Government. In that case, you may be criminally prosecuted by the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Taxation Office (ATO) under federal legislation. 

However, if the ATO does not believe that your crime is serious enough to be taken to court, you may simply receive an administrative penalty (e.g. a fine). 

Serious Federal Tax Crimes

In Australia, serious federal tax offences are legislated under the Criminal Code Act 1995 (Cth). The main tax fraud offences that are prosecuted under the Act include:

  • Dishonestly obtaining Commonwealth property by deception (s 134.1(1));
  • Obtaining a financial advantage from the Commonwealth by deception (s 134.2(1)); and
  • Dishonestly causing a loss to the Commonwealth (s 135.4(3)). 

All of the above tax crimes carry a maximum penalty of 10 years imprisonment. 

Federal tax legislation is very broad. Any of the following forms of tax fraud or tax evasion may mean that you are liable to be prosecuted for one of the offences above:

  • Failing to report cash income
  • Falsifying tax claims
  • Falsely claiming refunds and benefits that you are not entitled to (illegal tax avoidance)
  • Using complex offshore secrecy arrangements
  • Conspiring with your tax agent or accountant to obtain benefits that you are not entitled to.

There is no time limit to commencing federal tax fraud offences. 

Less Serious Federal Tax Crimes

It is at the discretion of the ATO and the CDPP whether or not you are prosecuted for federal tax fraud. If they believe that your matter is not serious enough to be taken to court, the ATO may instead impose an administrative penalty. 

Administrative penalties are often imposed in relation to less serious tax fraud offences, such as:

  • Making a false or misleading statement on your tax return
  • Failing to lodge a tax return or statement on time
  • Failing to withhold amounts as required under the PAYG withholding system
  • Failing to meet other tax obligations.

An administrative penalty is a fine that is calculated using a statutory formula and multiples of a penalty unit. For example, in Australia, one penalty unit is worth about $222. 

For example, the fine for making a false or misleading statement on your tax return is:

  • 20 penalty units if you were negligent (about $4,400)
  • 40 penalty units if you were reckless (about $8,800)
  • 60 penalty units if the act was intentional (about $13,300)
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