False Tax Claims
The ATO is responsible for looking into hundreds of cases of suspected fraudulent conduct each year. Therefore, it is important to have an understanding of the risks associated with filing a false tax claim. This piece on the blog will go over some of the most frequent types of false tax claims, as well as the potential consequences of getting found. In addition to that, we will provide some advice on how to stay out of trouble with the ATO. Continue reading to find out more!
Are you ever tempted to file a tax return with incorrect information? You’re not alone. Every year, millions of people try to avoid paying their fair share of taxes by engaging in fraudulent activities. On the other hand, you could be subject to very severe consequences if you are discovered. In this article, we’ll take a more in-depth look at the repercussions of filing a fraudulent tax return and explain why it’s in your best interest to steer clear of such repercussions whenever possible. In addition, we will offer some advice that you can use to ensure that the information on your tax return is correct and comprehensive.
The majority of people, when they think about taxes, think about the April 15th deadline and how much money they owe or are getting back from the government. Despite this, each year there are a lot of crimes committed involving taxes that end up costing the government billions of dollars. In this article, we will go through some of the most typical fraudulent tax claims, as well as the steps you may take to protect yourself from falling prey to them.
New, Stricter Measures Against Fraudulent Tax Deduction Claims Are Being Rolled Out by the ATO
Now that the Australian Taxation Office (ATO) is tightening down on potentially fraudulent claims during tax season, taxpayers have a greater responsibility to exercise increased caution when submitting claims for tax deductions.
The Australian Taxation Office (ATO) has stated in the past that it intends to implement more stringent measures as part of its crackdown on the $8 billion “tax gap,” which has also prompted it to send hundreds of thousands of “please explain” letters to Australians who have tax deduction claims that are questionable.
Which Tax Deductions Are Banned From Being Taken?
In addition to the modifications it is making in relation to tax deduction claims, the ATO is maintaining a vigilant vigilance over work-related expenses such as those associated with one’s automobile, clothing, and washing.
In 2018, more than 3.6 million taxpayers submitted claims for automobile expenses totalling more than $7.2 billion, while claims for clothing and laundry came to roughly $1.5 billion. According to Assistant Commissioner Karen Foat, there were nearly six million taxpayers who filed claims for these expenses; nevertheless, it is highly doubtful that half of those taxpayers were compelled to wear job-specific clothes in their jobs.
Deductions on Taxes That Don’t Require Receipts
Even though taxpayers are required to be able to show documentation (receipts) of the claims they make, taxpayers are exempt from providing receipts for some expenses, such as the first $150 in laundry expenses and the first $300 in work-related expenses.
The Australian Taxation Office (ATO) may, on the other hand, inquire as to how it was computed or even meet with employers in order to check whether or not the individual’s function justifies such expenses, such as a uniform.
The Australian Taxation Office (ATO) is concerned about the number of individuals who are claiming for ordinary clothing that they wear to work as well as clothing that is required by a particular dress code. These two types of clothing are distinct from uniforms, protective clothing, and occupation-specific clothes, and therefore do not qualify for tax deductions.
Those who are unable to present proof in support of their claims will not only have the deduction they are claiming taken away from them, but they may also face penalties for failing to act with due diligence while preparing their tax returns.
By comparing the claims of one person to those of others with jobs that are comparable, the government agency is able to discover claims that are not typical through the use of a sophisticated data analytics system. It is also able to identify taxpayers who make claims for specific things despite the fact that other people with the same profession often do not make claims for these items.
Guidelines to follow when submitting a deduction claim:
- The taxpayer is required to have paid for the expense out of their own pocket, without compensation from their job or another organization.
- Please provide evidence that this item is directly relevant to the position that the individual is applying for.
Making a False Tax Declaration
If an individual or a company makes a fraudulent tax declaration without a good cause, they put themselves at risk of facing large financial penalties from the Australian Taxation Office (ATO) (ATO).
If the ATO determines that you have provided incorrect or misleading information in your tax declaration, they will most likely give you an infringement notice for your actions.
The Australian Taxation Office (ATO) may send your case to the Commonwealth Director of Public Prosecutions (DPP), where you may be charged with significant criminal offences that can result in terms of imprisonment, depending on the severity of the deception and the advantage that has been acquired.
When exactly will the ATO begin its investigation?
If you submit a tax declaration that is either incorrect or misleading and it results in you declaring a deficit amount, the Australian Taxation Office (ATO) may hold you liable for a financial penalty.
The amount of the shortfall is the difference between your actual tax liability or credit entitlement and the liability or entitlement that was calculated using the information that you provided in order to complete the calculation.
If you make a tax declaration that is either false or misleading, the Australian Taxation Office (ATO) may nevertheless issue an infringement notice against you, even if there is no deficiency amount.
What Kind Of A Financial Penalty Will I Be Subjected To?
The ATO has determined that they have the authority to levy a monetary penalties in one of three different categories, depending on the degree of dishonesty that was committed. The severity of the deceit determines the level of the potential monetary fine that can be imposed.
The following are the categories:
- Failing to take reasonable care indicates that you did not take reasonable precautions, such as those that a typical and reasonable person would have taken in the same situation, and carries a fine of 20 penalty units;
- If you are found to have acted in a reckless manner, this indicates that you were aware of the possibility that the tax declaration you filed was dishonest or misleading, and despite being aware of this possibility, you either did not care about it or disregarded it. The fine for this offence is forty penalty units.
- Intentional Disregard of the Law: This means that you were fully aware that the tax declaration you made was either inaccurate or incorrect, but you filed it nonetheless in order to receive a benefit, so you purposefully disregarded the law (60 penalty unit fine).
Is It Possible To Either Decrease Or Increase The Base Penalty?
If there are any factors that could be considered either aggravating or mitigating in relation to your individual case, the base punishment could potentially be increased or decreased.
If you have been contacted by the ATO, and they 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. Another example is if you have been contacted by the ATO, and they are investigating a shortfall amount in your tax declaration, and you try to obstruct or prevent them from conducting their investigation In addition, the basic penalty may be enhanced if you were aware that you submitted a tax declaration that was false or misleading but you failed to notify the ATO within a reasonable amount of time after making the declaration.
The ATO also has the authority to decrease the standard penalty it would otherwise levy in certain circumstances. The following factors will be considered by the ATO when determining whether or not to lower the penalty:
- If you were cooperative with the ATO during their investigation.
- Whether you informed the ATO that the tax declaration was filed with inaccurate or misleading information.
- There were external factors that you were unable to control, and as a result, you were unable to fulfil your duties.
- An outcome that is not fair would be reached by applying the penalty that was proposed.
The Safe Harbor Provision refers to what exactly.
In the event that any of the following circumstances apply, you will not be subject to an administrative or financial penalty from the ATO:
- Your designated agent for service of process made the statement;
- You provided your agent with all of the relevant tax information in order to facilitate the preparation of an accurate statement;
- Your representative did not exercise the appropriate level of care, which resulted in the false or misleading statement;
- The assertion was made on or after March 1, 2010, at the latest.
Claiming a tax or superannuation refund by giving us incorrect information in order to obtain the refund is considered refund fraud. It is not a thoughtless or unintentional mistake because it is done intentionally and dishonestly. This elevates it to a higher level. This fraud can take place in a variety of different methods, including the creation of phony expenses as well as the creation of false documents to support a claim. In addition to this, some people submit bogus claims under their own names or under the names of their companies.
When a person’s personal identifying information is taken and used to impersonate legal taxpayers in order to file fraudulent refund claims in their names, this is another form of refund fraud that can be enabled by identity crime.
In order to conduct fraud, highly organized syndicates will resort to a variety of means, including the theft of personal identifying information. These activities have a catastrophic effect on honest individual taxpayers as well as the tax and super system.
These are all examples of refund fraud:
- submitting income tax returns and modifications that contain fraudulent payment summaries or information, fictitious income statement details, or fictitious expenditure claims or offsets;
- supplying incorrect information in financial statements, such as making up phony costs;
- lodging fraudulent returns using fictitious or stolen identities;
- claiming the Goods and Services Tax (GST) by registering fraudulent businesses, using stolen or fictitious identities, or submitting fraudulent business registrations;
- gaining access to retirement money by forging necessary documentation.
When people commit refund fraud, they steal revenue that could have been utilized to help the disadvantaged and the entire community. Those citizens of Australia act in an ethical manner. This is something that we take very seriously, and as a result, we have a wide variety of controls and procedures in place to identify any potential instances of refund fraud. These include the following:
- analytical models that make use of behavioural and statistical algorithms in order to analyze information on tax forms such as income tax returns, business activity statements, and other tax forms;
- sharing information and intelligence with our business partners both in Australia and abroad;
- obtaining information about possible fraudulent activity from members of the community and from other government entities.
- receiving information about suspected fraud from the community and other government agencies.
Penalties and other legal repercussions that might be expected for tax evasion in Australia
Some dishonest individuals and businesses will go to great lengths to avoid paying the appropriate amount of tax in order to increase their profits. However, the tax collector won’t be fooled for very long and won’t realize that you have been filing erroneous tax returns.
In Australia, evading taxes is considered a serious criminal offence. This conduct constitutes a breach of the Criminal Code Act 1995, and as such, it can be the subject of a criminal investigation and possible legal action. The penalties might range from the restitution of lost or stolen property to lengthy prison sentences.
Offences Related to Tax Evasion and Their Consequences
Income taxes, property taxes, and corporate taxes are among the most common forms of taxation in Australia, despite the country’s wide range of taxation options. However, sadly, these are also the taxes that are avoided the most, particularly by people who are in charge of businesses. Taxes on goods and services, as well as taxes on inheritance, were among the other types of taxes that were evaded.
The following is a list of the most prevalent tax evasion offences and the legal implications of those offences:
False Tax Returns
When it comes to submitting tax returns, this is by far the most popular strategy that people adopt. They supply the Australia Tax Office with fabricated information, which helps them to lower the amount of taxes that are owed to the organization (ATO). It is a criminal offence to violate section 134.1(1) of the Criminal Code Act, which was passed in 1995.
The prosecutor has the burden of demonstrating that you knowingly filed false tax information with the goal of creating the state government out of money. To demonstrate that it was a mistake, you will need an experienced legal team. If you are found guilty of getting property by deception, which is often referred to as filing false tax returns, you face the possibility of receiving a monetary fine or a prison sentence of up to ten years, whichever comes first.
Claiming False Benefits
It is a violation of the law, as stated in section 134.2(1) of the Act, to get a financial benefit through dishonest means. For instance, certain people might try to include misleading information on their tax returns in order to receive tax benefits, such as artificially raising the number of deductible things they claim to have. An excellent illustration of this would be making a fraudulent claim on money that was given to charity.
The consequences are severe if you are found guilty, despite the fact that the prosecution will have to establish beyond a reasonable doubt that you formulated a scheme to obtain a financial advantage through deception in order to secure those penalties. You might be sentenced to a maximum of ten years in prison or required to pay heavy penalties instead.
Acquiring a Financial Competitive Advantage
It is a violation of the law for anybody to acquire a financial advantage from the ATO, as stated in the first paragraph of section 135.2 of the Act. If you knew that you did not qualify for a tax benefit but nonetheless tried to get it, you have committed a tax offence since you lied to the government about your eligibility. You have committed a crime if you intentionally engage in behaviour with the intention of obtaining a financial advantage from the ATO.
In the event that the prosecutor establishes both of these criteria beyond a reasonable doubt and the court finds you guilty, you face the possibility of receiving a maximum sentence of one year in jail, a fine, or both.
Conspiracy to Commit Financial Fraud
It is a crime to form a conspiracy with the intent of defrauding the state. According to subsection 135.4(3) of the Act, it is a criminal offence if it can be demonstrated that you and one or more other people had an agreement to defraud the Australia Tax Office (ATO).
This provision in the tax legislation is intended to cover the scenario in which two or more entities or people work together to commit tax fraud. In the event that guilt is established, both parties or all parties implicated are jointly and severally liable. This tax offence carries a potential punishment of ten years in jail at the maximum.
Tax Fraud – Avoid Going to Jail for Tax Evasion in Australia
Tax fraud, often known as tax evasion, refers to the unethical and unlawful manipulation of the tax system for the purpose of gaining a financial advantage.
Both the federal government and the state governments in Australia have passed laws that make tax fraud a criminal offence. Fraudulently evading taxes is a serious offence that can result in a sentence of up to ten years in jail at the most.
The term “tax fraud” encompasses a wide variety of illegal activities at the state and federal levels. For the majority of these offences, the prosecution must demonstrate that the fraudulent act was committed on purpose, as opposed to being careless or occurring by mistake. If the authorities have reason to think that a person committed a tax crime as a result of carelessness or accident, they may only issue a fine for a lesser offence rather than a criminal conviction.
In the next section, our tax fraud attorneys will discuss criminal tax offences, including the following:
- Comparing Australia’s Federal and State Taxes;
- Offences and Consequences Related to Federal Tax Fraud;
- Offences and Penalties Related to Tax Fraud in Victoria (Including Evasion of Taxes);
- Options for Legal Protection Against Tax Fraud;
- What You Should Do If You Have Been Accused Of Committing Tax Fraud;
Taxes in Australia: Federal vs State Taxes
Taxes are levied on residents of Australia by not just one but two distinct tiers of government: the Federal Government (often referred to as the Commonwealth) and the State Government.
Every individual and business in Australia may be subject to taxation by the Federal Government. The following are examples of some of the most often paid federal taxes:
- Tax on Income;
- Capital Gains Tax;
- Tax on Products and Services;
- Fringe Benefits Tax;
- Medicare Levy;
- Superannuation Tax.
In comparison, the only authority that state governments have to impose specific taxes within their own state or territory is limited to that authority. The following are examples of common state taxes:
- Tax on Stamps;
- Payroll Tax;
- Tax on the Land;
- Duty Relating to Motor Vehicles
Both the federal government and the individual states each have their own legislation that makes tax fraud a punishable crime.
Australia – Federal Tax Crimes and Penalties
Imagine that you have committed a significant act of tax fraud against the Australian Federal Government. If this is the case, the Commonwealth Director of Public Prosecutions (CDPP) or the Australian Taxation Office (ATO), both of which operate under federal statute, may decide to bring a criminal prosecution against you.
On the other hand, in the event that the ATO determines that the nature of your transgression does not warrant legal action, you might only be subject to an administrative penalty (e.g. a fine).
Serious Violations of Federal Tax Law
The Criminal Code Act 1995 is the piece of legislation in Australia that regulates the most serious tax offences (Cth). The following are the most common types of tax fraud offences that can result in prosecution under the Act:
- Obtaining property belonging to the Commonwealth through dishonest means (section 134.1(1));
- obtaining a pecuniary benefit from the Commonwealth by means of fraud (section 134.2(1));
- A violation of this section is dishonestly inflicting a loss to the Commonwealth (section 135.4(3)).
- The maximum sentence for each of the tax-related offences described above is ten years in prison.
Federal tax legislation covers a wide range of topics. If you are found guilty of committing any of the following types of tax fraud or tax evasion, you may be subject to prosecution for one of the offences listed above:
- failing to record income received in cash;
- submitting false tax claims;
- illegally avoiding taxes by making fraudulent claims for tax refunds and other advantages to which they are not entitled;
- utilizing convoluted arrangements for maintaining confidentiality offshore;
- collusion with your tax preparer or accountant to fraudulently get benefits to which you are not legally entitled.
There is no statute of limitations on when federal tax fraud offences can be initiated.
Federal Tax Crimes That Are Not As Serious
Whether or not you are prosecuted for federal tax fraud is entirely up to the discretion of the Australian Taxation Office and the Commonwealth Director of Public Prosecutions. The ATO may instead decide to impose an administrative penalty on you if they consider that the situation at hand is not significant enough to warrant being brought before a judge.
Administrative punishments are frequently given in connection with tax fraud offences that are not as severe, including the following examples:
- Making a declaration on your tax return that is either incorrect or misleading;
- omitting to file a tax return or statement within the prescribed time frame;
- Neglecting to deduct money as required by the PAYG withholding system;
- Other tax responsibilities are not being met by the taxpayer.
A legislative formula and multiples of a punishment unit are used to determine the amount of a fine that is referred to as an administrative penalty. As an illustration, in Australia, one penalty unit is equivalent to around $222 in value.
For instance, if you make a statement on your tax return that is either untrue or misleading, you will be subject to the following fines:
- 20 penalty units, which is equivalent to around $4,400, if you were negligent;
- 40 penalty units, which is equivalent to around $8,800, if you were careless;
- 60 penalty units, or approximately 13,300 dollars, if the act was purposeful.